The GDP shrank by 0.2% in the third quarter of 2022, indicating the potential beginning of a protracted recession.
According to the preliminary assessment, the economy did better than anticipated in the third quarter despite the recession. Refinitiv reported that analysts had predicted a 0.5% decline in economic activity.
Since the 0.1% decline in the second quarter was revised up to a 0.2% rise, the contraction does not yet constitute a technical recession, which is defined as two consecutive quarters of negative growth.
“In output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in Quarter 3 2022, including falls in all 13 sub-sectors of the manufacturing sector,” the Office for National Statistics said in its report Friday.
The Bank of England predicted this week that the current slump, which started in the third quarter, would likely persist well into 2024 and raise unemployment to 6.5% over the following two years, making it the country’s longest recession since records have been kept.
Because of the nation’s historically high cost of living, real earnings are being squeezed by rising energy and tradeable goods costs. In an effort to control double-digit inflation, the central bank has increased interest rates by the most since 1989.
According to the ONS, the third quarter’s quarterly GDP was 0.4% lower than the last quarter of 2019’s pre-Covid level. The public holiday for Queen Elizabeth II’s royal funeral, however, had an impact on the September statistics, which showed a 0.6% decline in U.K. GDP.
The new fiscal policy agenda, which is anticipated to contain significant tax increases and spending reductions, will be announced by UK Finance Minister Jeremy Hunt the following week. To stabilize the nation’s economy, Prime Minister Rishi Sunak has cautioned that “tough decisions” will need to be made.
“While some headline inflation numbers may begin to look better from here on, we expect prices to remain elevated for some time, adding more pressures on demand,” said George Lagarias, chief economist at Mazars.
“Should next week’s budget prove indeed ‘difficult’ for taxpayers, as expected, consumption will probably be further suppressed, and the Bank of England should begin to ponder the impact of a demand shock on the economy.”
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