November growth surprises at 0.9%: A hot December inflation reading will ruffle rates feathers at the BoE

The ONS confounded forecasters today by revealing that gross domestic product is estimated to have grown by 0.9% in November 2021 and is now above its pre-COVID-19 pandemic level (of February 2020) for the first time, by 0.7%. Consensus expectations were for a much more modest rise of 0.4%, after weak growth in October of just 0.1%.

‘The data, though it’s an estimate and could be revised, suggests that the UK economy is running hotter than many think,’ says Adrian Lowery, personal finance expert at investing platform Bestinvest.

‘While there is bound to be a drag on growth in December and January from disruption caused by the emergence of Omicron, this reading gives hope that growth in those months might not be as weak as feared. There does seem to be a bit of a disconnect between the widely reported pessimism over soaring costs of living and recent survey data like January’s Ipsos consumer confidence index, which was a reasonably healthy 51.9.

‘This could be because wage growth is keeping pace with inflation: the latest ONS data for October 2021 showed it running at 4.9%. Also household net wealth is high compared to take-home pay, suggesting some families might be taking comfort from savings and other assets. Though this won’t be felt by poorer households who find it harder to cope with a cost of living crunch.

‘All eyes will now be on the consumer prices index release next Wednesday to see whether December inflation exceeded the 10-year high of 5.1% recorded for November. A strong reading there will make the Bank of England’s next monetary policy committee meeting, which concludes on Thursday 3 February, very interesting.

‘As December’s surprise hike of the bank rate to 0.25% was nearly unanimous, with a 8-1 vote, it seems there’s a new hawkish bent to the MPC. Another hike so promptly seems unlikely but if inflation comes in high, the lack of evidence on how much Omicron has hit economic activity will make it a very nuanced decision.’