Monday, January 24, 2022

Surprising GDP growth is good news for the economy: what it means for you

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The British economy grew 0.9 percent in November – more than economists had predicted. I’ll explain how this affects you

Economists had only forecast growth of 0.4 percent for November as the Covid-Omicron variant plunged companies into a crisis due to staff shortages.

Stronger-than-expected economic growth in November surprised economists this week after the Office for National Statistics (ONS) confirmed estimates showing gross domestic product (GDP) was 0.7 percent higher than in February 2020.

Now fears that this may have dampened GDP growth in December and this month have gripped markets. But what does all this mean for the man, woman, child and person on the street? I explained.

GDP, or gross domestic product, broadly measures the size of a country’s economy.

In the UK, GDP is measured by the Office for National Statistics (ONS), which collects data from thousands of UK businesses and produces an estimate. It’s difficult to get an exact figure as there are three ways to measure GDP.

In general, it can be calculated by adding up either the total value of goods and services produced in the UK, or the income of everyone, or the expenditure of everyone in the country.

The ONS notes that these are three methods of estimating the same thing and can produce different results because there is never enough data to create a 100 percent complete picture of the economy.

Today, the ONS confused forecasters by revealing that GDP grew by an estimated 0.9 percent in November 2021 and is now 0.7 percent above pre-Covid-19 pandemic levels for the first time.

Consensus expectations assumed a much more modest increase of 0.4 percent, after weak growth of just 0.1 percent in October.

“The data, while estimates and subject to revision, suggest the UK economy is running hotter than many realise,” said Adrian Lowery, personal finance expert at investment platform Bestinvest.

Various economic and societal factors can affect a country’s GDP and financial health. For example, Christmas shopping boosted spending in the winter months, which helped in part to increase GDP.

Negative events can also affect an economy. An obvious example is the coronavirus, which has remained a dark cloud over the global economy for almost two years.

While some might expect an economy to struggle in response to dire news, economic progress may remain surprisingly resilient, as many experts believe omicron’s impact was — or will be — overblown.

Certain sectors, such as manufacturing and construction, were under pressure when lockdowns were introduced, but if there are any signs of improvement this could lead to more good economic news.

As industries improve and generate more revenue, they can expand, hire more staff, and invest in more projects. This in turn increases tax revenue for the treasury, which allows the state to spend on its own public projects or to cover deficit repayments.

Ian Warwick, managing partner at investment firm Deepbridge Capital, explained what could be on the horizon.

“UK GDP growth rates reflect the imminent rise in interest rates that many are anticipating as inflation continues to rise,” he said.

“2022 is going to be quite a bumpy year for many businesses across the UK. It therefore remains vital that scale-up companies are supported, particularly in high-growth sectors such as digital technologies and life sciences, as they are at the heart of economic growth as we create an economy fit for the 21st century. ”

Danni Hewson, financial analyst at AJ Bell, said the easing of supply problems that have plagued the construction sector over the past year is positive news.

“This was a ray of hope for the UK economy in the early days of the pandemic, but production has declined in recent months as the world struggled to get goods where they were needed and prices rose accordingly.”

Ms Hewson noted that the bulk of the new work has been in infrastructure, although housing construction is still well below pre-pandemic levels despite the ongoing “heat in the market”. She also emphasized that the last purchasing periods have been particularly powerful.

She said: “Most people tallying up their Christmas spending won’t be surprised that retail also played a big part in boosting the UK economy in November.

“Consumers have been spending early and generously and trade updates from many retailers suggest spending continued into December, but it begs the question of how much disposable income is left to bring economic prowess into the new year, especially when these energy prices are really starting to bite.

“All of these sales have boosted the performance of the service sector. Warehouses became a bustling activity; The streets were packed with couriers delivering Black Friday bargains as the event grew into a full month and the highways were packed with trucks.”

As with all predictions, it’s difficult to know how the economy will fare in 2022. The ONS is yet to analyze the December figures, but Ms Hewson expressed concern about the coming months.

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