State of the economy: September 2019

United Kingdom Summary

GDP contracted in Q2 2019 for the first time since 2012.

• UK GDP contracted by 0.2% in the second quarter of 2019 and grew 1.3% over the year.
• Manufacturing output fell 2.3% in Q2 2019, reflecting the unwinding of stock building ahead of the original Brexit deadline and widespread car firm shutdowns in April.
• GDP grew 0.3% in the month of July 2019 however remained flat over the 3-months with falls in manufacturing (-0.5%) and construction (-0.8%) output offsetting service sector growth (0.2%).

Employment rate at record high in May-July 2019.

• UK employment rate rose over the year to 76.1%, its joint highest on record, with 32.8 million people in employment.
• UK unemployment fell to 3.8%, its joint lowest rate since 1974.
• The inactivity rate remained unchanged over the quarter at 20.8%, however has fallen by 0.5 p.p over the year.
• GB regular pay continued to strengthen into the second half of 2019 growing 1.9% over the year to July (up from 1.5%).
• Labour productivity fell by 0.2% over the year to Q1 2019; its third consecutive quarter of contraction.

CPI inflation fell in August.

• Inflation edged up in recent months to 2.1% in July, however fell back to 1.7% in August.
• The fall in the rate was driven by a range of recreational and cultural goods and services, clothing and sea fares.
• The Bank of England (BoE) forecast inflation to remain above target at 2.1% and 2.2% in 2020 and 2021.

UK GDP growth is forecast to slow in 2019.

• The BoE forecast GDP growth of 1.3% in 2019, with weaker global growth and Brexit uncertainty weighing on investment.
• The IMF also forecast the UK economy to slow in 2019 to 1.3% before rebounding to 1.4% in 2020.
• Both forecasts assume a smooth Brexit transition.