UK recession may have already started as economy shrinks

Britain may have already entered recession as the latest economic figures showed the economy contracted in the benchmark quarter between July and September.

In its estimate of the UK’s third quarter gross domestic product (GDP), figures released by the Office of National Statistics (ONS) on Friday showed the economy contracted by 0.2%.

During this period, the service sector slowed to completely flat output while the production sector contracted by 1.5%, partly due to declines in all 13 manufacturing sub-sectors.

ONS director of economic statistics Darren Morgan told the BBC that customer-facing businesses such as shops have also ‘performed poorly’ as the cost of living crisis has seen people slash their spending habits. He added that businesses are also facing challenges given rising commodity prices as well as rising energy costs.

The decline was more pronounced in September, which saw a 0.6% drop, however, the statistics agency attributed this to the public holiday surrounding the state funeral of Her Majesty Queen Elizabeth II, during which many businesses have closed or operated on a partial basis.

The figures come after the Bank of England predicted last week that the UK was likely to enter its longest recession in a hundred years. The central bank projected the recession to last until the middle of 2024, increasing its previous estimates which called for a recession of 15 months.

The ONS figures match forecasts, which suggested the recession would officially start in the third quarter of this year. However, as a recession is generally defined as two consecutive quarters of negative growth, a statement would not occur until GDP figures for the last quarter of the year confirm that the economy has contracted again.

The Bank of England, which raised interest rates last week to 3% in an attempt to fight inflation, will likely have to raise them again to 4.75% to bring inflation back to its target of 2%, according to the National Institute for Economic and Social Research.

That means mortgage payers will likely see their payments rise again, and Rishi Sunak’s government plans to introduce more tax hikes.

As Britain’s central bank was caught off guard in its inflation projections and the clear impacts of decisions to repeatedly lock down the country during the Chinese coronavirus crisis, the Bank of England has tried to blame the problems of inflation on Brits retiring early.

The bank’s chief economist Huw Pill said a rise in early retirement was putting more pressure on employers, saying: “It’s a real shock to the economy, it’s not something something that monetary policy can prevent”.

Follow Kurt Zindulka on Twitter here @KurtZindulka

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