Clear evidence now emerging of difficulties in consumer-facing sectors

Commenting on ONS data that shows monthly GDP fell by 0.3% in August 2022, compared to July, Kitty Ussher, Chief Economist at the Institute of Directors, said:

“Clear evidence is now emerging of difficulties in consumer-facing sectors, as households adjust their spending decisions in response to inflationary pressures. Retail trade has now contracted nine times in the last 10 months. August also saw a significant monthly fall in accommodation and food service activities and a notable contraction in the manufacture of motor vehicles.

“However, it is important not to overstate the situation, particularly given the jittery nature of the markets and low consumer confidence. There are significant Covid effects still working their way through the data, notably the scaling back of test-and-trace activity but also in the preparation of pharmaceutical products, including vaccines.  In addition, the wonderful sporting events we saw in July meant that August’s data for recreation activities was lower by comparison. The sectors of professional services, ICT and construction also performed well.

“Overall, the data shows a slowing economy. The key question is whether this in itself will bring down inflation, or whether interest rates need to rise further. Given that the labour market remains very tight, on balance the Bank of England is likely to judge that further interest rate rises are needed.”