Bulletin: Economic growth and inactivity rising

Economic growth

The ONS has reported that GDP increased by 0.2% in January, following a decrease of 0.1% in December. GDP declined by 0.1% in the three months to January 2024. Last month, the ONS reported that the UK economy entered a recession. This is often defined as two consecutive quarters of “real terms” contraction.

Retail sales volumes are estimated to have increased by 3.4% month-on-month in January, following a decline of 3.3% in December 2023. Sales volumes in supermarkets contributed most to the increase.

IGD Viewpoint: The latest data is evidence of a long-term trend of flat or low economic growth. The Office for Budget Responsibility (OBR) recently revised upwards the projections for GDP. However, we should expect low growth to be the defining attribute in the short- to medium-term.

Inactivity rising

Economic inactivity – which means “not in work and not looking for work” – remains far higher than it was pre-pandemic, in terms of both numbers and prevalence. Latest ONS data shows that more than one in five (21.8%) of 16-64 year-olds are classified as economically inactive.

Ill health is a major reason why inactivity is rising, although this issue is quite complex. During and after the pandemic, older adults with ill health were the major drivers of inactivity.

More recently, young adults with ill health – especially mental ill health – have become the major drivers of change. This point was highlighted in a recent report by the Resolution Foundation.

See our full analysis.

IGD Viewpoint: There are strong correlations between poor mental health and unemployment or low earnings when in work, meaning that young people falling into poor health may suffer life-long impacts.

There is a high chance that employers will need to deal with poor mental health issues, either in the recruitment process or in the workplace.

Wage growth slowing

Annual average wage growth peaked in Summer 2023 but has slowed somewhat since then to 6.1%. However, wage growth remains ahead of inflation, for now.

“Real” wage change is therefore still positive, allowing at least some workers to rebuild recent losses to their spending power.

IGD Viewpoint: With wage growth slowing and the economy stagnating, many households will remain under pressure for the foreseeable future.

Tight labour market

Vacancies declined again to 908,000 in the period December 2023 to February 2024, a decrease of 43,000 from the previous three months. Vacancy numbers fell on the quarter for a record 20th consecutive period, the longest run of falls ever recorded. However, vacancies remain 107,000 higher than their pre-pandemic level.

IGD Viewpoint: There are limited signs that demand for labour is weakening – not a surprise given lacklustre economic performance. The number of unfilled job vacancies is falling and the number of redundancies is rising.

Inflation changes

The ONS has updated the methodology used to calculate inflation. Adjustments are based on evolving patterns of expenditure.

Food, drink and tobacco sold at retail will now have slightly less influence on overall inflation than before. In contrast, foodservice will have a little more influence than before. The "basket" of sample items is also changing, reflecting changing shopper preferences and the ability of researchers to find sufficient items on sale.

In the food and grocery category, wrap bread, dairy-free spread, mouthwash and sanitary towels have been added. Lamb, cooking apples and tampons are out.