MNI DATA IMPACT: UK GDP Sees Modest Q2, Q3 Upward Revision

UK Q3 GDP rose by even more than the record showing reported last month, although output remains well below pre-pandemic levels, while borrowing rose to the highest level since May, data released Tuesday by the Office for National Statistics showed.

GDP surged by 16.0% in Q3 , the biggest rise on record, beating the previously-reported 15.5% gain. Output remains 8.6% below its level at the end of 2019 (versus -9.7% initially reported) and declined by 8.6% over the same quarter of 2019.

Borrowing rose to GBP31.571 billion last month, above expectations of GBP28 billion, the highest level since May. Despite the increase in borrowing, the debt-to-GDP ratio fell to 99.5%, from the originally-reported 100.8% in October. However, the October ratio was revised downward to 99.2%, reflecting a reduction in debt of GBP2.6 billion, according to an ONS official. The debt ratio doesn't reflect the improvement in Q3 GDP performance reported on Friday, suggesting that the debt ratio could be revised lower next month, the official added.

Even after Friday's upward revision to GDP, the UK recovery has been less robust than in other developed nations. Eurozone output was 4.4% below its pre-pandemic level, while the US economy was 3.5% smaller than at the end of last year. Revised US Q3 GDP data are due later on Friday.

GDP contracted by 18.8% in Q2, better than the previously-reported 19.8% decline, but fell by 3.0% in Q1, worse than the 2.5% decline reported previously. Output rose by 1.6% in 2019, improving on the previously-reported 1.3% increase. The savings ratio declined to 16.9% in Q3, still the second-highest on record, from 27.4% in Q2. Household spending jumped by 19.5%, exceeding the previously reported 18.3% gain.

Business investment rose by 9.4% in Q3, better than 8.8% reported previously, but remained 19.0% below pre-pandemic levels. Business investment has declined by 18.8% since Q2 2016, when the UK voted to leave the European Union. Most output components expanded by a greater amount than previously reported. Services expanded by 14.7% (+14.2% previous), while manufacturing rose by 19.5% (+18.7% previous). Construction rose by 41.2%, down slightly from the 41.7% gain previously reported.

October borrowing was revised to GBP21.673 billion from the GBP22.318 billion reported in November, the smallest revision since April, as the ONS is getting "better at estimating tax" revenues, said an official. Year-to-date borrowing rose to GBP240.9 billion, meaning borrowing must average approximately GBP40 billion a month over the rest of the financial year to meet the OBR's full-year target of GBP394 billion. That's well above the average of GBP30 billion per month since April, but borrowing has been creeping up over the past several months and is likely to rise significantly to reflect the costs of the latest economic lockdown.

The headline current account deficit widened to GBP15.7 billion from GBP11.915 billion in Q2, taking the shortfall to 2.9% of GDP. Excluding non-monetary gold and precious metals, the deficit hit GBP15.6 billion.