Press release

12 Dec 2022 London, GB

Underlying outlook remains soft despite October's rise in GDP – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, provides comments on the latest public finance news.

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  • October's month-on-month increase in UK GDP was probably due to the comparison with September, when the extra bank holiday affected activity. The bigger picture is one of activity remaining sluggish on an underlying basis, and the EY ITEM Club expects that GDP is likely to be – at best – flat in Q4, with a good chance of seeing a second successive quarter-over-quarter fall.
  • The downturn seems likely to deepen in the near-term, due to the continued squeeze on household spending, and with the impact of tighter monetary policy still to be realised and fiscal policy likely to be tightened substantially from April. The EY ITEM Club expects to see GDP fall further in H1 2023. 

Martin Beck, chief economic advisor to the EY ITEM Club, says: “GDP rose by 0.5% month-on-month in October, following September's 0.6% fall. The volatility was due to September's extra bank holiday. Businesses in consumer-facing parts of the services sector were particularly affected, with distribution, administrative services, and the arts reporting particularly large falls in September and rebounds in October.

“Despite October's recovery, GDP was still below the peaks seen in May and July, suggesting that the underlying picture remains soft. And even though the quarter has started with a month-on-month increase, the EY ITEM Club expects that, absent data revisions, the best-case scenario is that GDP will be flat in Q4 as a whole, with a good chance there will be a second successive quarter-on-quarter contraction.

“The near-term outlook remains gloomy, as consumers continue to struggle under the weight of high inflation and with much of the impact of this year's interest rate rises still to be realised. The EY ITEM Club also expects the Bank Rate to rise further in the short-term. Meanwhile the fiscal stance will be tightened significantly from April, as a series of tax rises are implemented and support to help consumers pay their energy bills is reduced. Against this backdrop, the EY ITEM Club expects GDP will fall further in H1 2023.”