Weakness in the production sector may be cause for concern

Commenting on the news that GDP increased by 0.1% in the month of February, Kitty Ussher, Chief Economist at the Institute of Directors, said:

“We have become used to the economic news following the path of the pandemic, and there are elements of this in today’s GDP data for February: a reduction in activity from the scaling back of the Test-and-Trace programme and an increase from the loosening of remaining travel restrictions, particularly for February half term.

“However, today’s data may also contain early signs that underlying demand in the economy is weakening, with output in the production sector falling by 0.6% in February, and particular difficulties in car, electronic and chemical manufacturing.

“If this weakness is due to the unavailability of components, then it may correct itself in future although the escalation of the conflict in Ukraine will make that harder in the short-run. However, if it is due to falling demand from the end consumer, worried about the rising cost of living, then there may be further economic clouds on the horizon in the months ahead.”