London
CNN
—
The UK’s financial system shrank within the third quarter of this 12 months, in line with revised official information, stoking issues that it may very well be heading for a shallow recession.
The nation’s gross home product fell by 0.1% within the three months to the top of September, in contrast with an preliminary estimate of no change, the Workplace for Nationwide Statistics stated on Friday.
GDP information for the previous quarter was additionally revised down to indicate no development, in contrast with a earlier estimate that the financial system had expanded by 0.2% within the April-June interval.
The ONS stated output within the dominant companies sector fell 0.2% within the third quarter, offsetting will increase in development and manufacturing. Client spending dropped 0.5% over the identical interval, a barely larger decline than the 0.4% the ONS had initially estimated.
Some analysts suppose the UK financial system — grappling with inflation that continues to be excessive by worldwide comparability and weighed down by elevated borrowing costs — may very well be flirting with a recession.
A recession is often outlined as two consecutive quarters of financial contraction.
Ashley Webb, UK economist at Capital Economics, stated the revised GDP figures might “imply that the mildest of delicate recessions” had began within the third quarter, and confirmed that “the drag from larger rates of interest is beginning to hit households more durable.”
“With the total results of upper rates of interest but to feed by means of to the financial system, we expect client spending will fall additional in This fall 2023 and Q1 2024,” Webb wrote in a Friday observe.
UK client value inflation slowed to 3.9% in November however continues to be method forward of the Financial institution of England’s 2% goal (and compares unfavorably with US and Eurozone inflation at 3.1% and a pair of.4% respectively).
Excessive rates of interest proceed to eat into family funds, stated Sophie Lund-Yates, lead fairness analyst at Hargreaves Lansdown.
“The contraction within the financial system will increase the possibilities of an official recession coming down the pipes within the new 12 months,” she wrote in a Friday observe.
Even when the UK dodges a recession, its development prospects are dim. The Workplace for Finances Duty (OBR) expects the financial system to develop simply 0.7% over subsequent 12 months, a big drop from the fiscal watchdog’s March forecast of 1.8% growth and hardly any enchancment on 2023’s efficiency.
The subdued outlook is “a results of weak actual wage development, the impact of previous will increase in rates of interest and fading fiscal help,” the OBR stated in its November report.
“It’s believable that solely round half the affect of the previous substantial rise in rates of interest has but fed by means of to the financial system,” the OBR stated, noting {that a} rise within the variety of fixed-rate mortgages up to now few years had delayed the affect of rate of interest hikes on many households’ disposable incomes.
Round 1.6 million fixed-rate mortgages are due to end in 2024, in line with UK Finance, an affiliation of banks and monetary companies corporations.