The Christmas holidays are just around the corner, and for many households this is a chaotic time. The economic news this month, however, appears to tell a calmer story, mostly of “no change”. That said, there have been several new data releases that put a different spin on the headline figures.
This Insight discusses economic growth, interest rates, inflation, and household debt in the latest statistics.
10% of firms responsible for nearly two-thirds of productivity growth (while overall economic growth stays flat)
This month’s GDP data from the Office for National Statistics (ONS) shows that the economy did not grow at all in August to October 2023, compared to the previous three months.
This lack of growth continues a longer-term trend of the economy staying essentially the same size since early 2022.
Some sectors are optimistic about business growth and performance, such as the service industries. This is not the case for the manufacturing industry, however, where output and business confidence are both down.
As the chart below shows, the forecasts published by the Office for Budget Responsibility (OBR) alongside November’s Autumn Statement suggest that GDP per person will remain roughly at or below pre-pandemic levels until around 2025.
Source: OBR, Economic and fiscal outlook – November 2023, 22 November 2023, supplementary economy table 1.5
The ONS has published experimental statistics this month that suggest growth in productivity (which is economic output per hour of work) has been concentrated in a relatively small number of highly productive firms since the 2008 financial crisis.
The most productive 10% of firms were responsible for nearly two-thirds of productivity growth between 2011 and 2019. In the services sector, the difference in productivity between the most productive firms and the average firm has been increasing steadily for the past 20 years or so.
Bank of England hold its interest rate steady, and new figures show the impact of inflation
The Bank of England’s Monetary Policy Committee (MPC) sets the Bank’s main interest rate and has raised it repeatedly since December 2021 in an attempt to control inflation. However, these rate rises restrict economic growth.
As the chart below shows, the MPC has voted to maintain the interest rate at each of its last three meetings, and there have been no votes to reduce the rate. As the MPC warned on 13 December, this suggests that interest rates are not coming down any time soon, and may still have to increase further. However, as the Financial Times explains, most investors and economists in the UK expect that rates will be cut in 2024.
Source: Bank of England, Monetary Policy Committee voting history, 14 December 2023
The Consumer Prices Index (CPI) that measures inflation has fallen fairly steadily since its peak of 11.1% in October 2022. In November 2023 it was 3.9%. However, the ONS’s new experimental Household Costs Index suggests that most households in the UK have seen higher inflation over the past year than the CPI rate suggests.
In September 2023, households in the middle of the income distribution experienced price rises of 8.1% over the previous year, somewhat higher than the 6.7% indicated by that month’s CPI. The difference in September was largely driven by housing, electricity and gas costs.
Household debt is falling, but household bills arrears are rising
Household debt (measured as the ratio between debt and disposable income) has now been falling steadily since the middle of 2021, having been stable for roughly the previous seven years.
However, this fall has been driven by fewer people taking out mortgages (the main form of secured debt).
Although households are borrowing less relative to their income than they were before mid-2021, Citizens Advice says that debt on household bills is effectively hidden from the overall statistics. Citizens Advice describes the potential impact of this debt on society as a “time bomb”, as it could be considerable.
Data from Ofgem, the energy regulator, in the chart below shows that more people are struggling to pay energy bills. The average level of debt with no arrangement to repay (arrears) has risen sharply since the middle of 2022.
Note: Secured credit is debt taken out against an asset, such as a mortgage. Consumer credit is unsecured debt, such as on a credit card.
About the author: Philip Brien is a researcher at the House of Commons Library, specialising in public spending.