Experts: UK still heading into recession

 

From 2h ago

07.25 GMT

https://www.theguardian.com/business/live/2022/dec/12/gdp-report-uk-economy-october-recession-services-manufacturing-business-live

 

Experts: UK still heading into recession

 

City experts are warning that the UK is still heading into recession.

The 0.5% increase in GDP in October does not mean that the downturn has been averted.

 

Jeremy Batstone-Carr, European Strategist at investment bank Raymond James, says rising inflation and higher interest rates are hitting growth:

 

“This tentative rebound from sharply falling GDP in September may look like a positive step back toward growth, but we should not get over-excited. Half of September’s fall in GDP was due to the one-off bank holiday for the Queen’s funeral, so we were always likely to see a correction as the UK returns to regular working days. Today’s GDP figures flatter to deceive, concealing an otherwise-shrinking economy.

 

“The economy is no longer teetering on the edge of recession; it is fully in one. We are now feeling the pain of both relentless inflation and interest rate rises, which are both crippling business and household spending. The Bank of England’s Monetary Policy Committee is divided on how sharply to rise base rates, but it looks increasingly likely we will be living with another 0.5% increase by the end of this week.”

 

U.K. economy grew by 0.5% in October but consensus is we are still in foothills of prolonged recession.

 

Extra working day last month (following bank holiday in Sept for Queen’s funeral) boosted activity.

 

Bank of England expects GDP to drop by 0.3% in last three months of year.

 

— Joel Hills (@ITVJoel) December 12, 2022

The rise in GDP in October is a ‘false dawn’, warns Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales).

 

Thiru points out that the Bank of England is likely to raise interest rates by another half a percentage point on Thursday, from 3% to 3.5%, which would dampen growth.

 

“October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was supressed by the Bank Holiday for the Queen’s funeral.

 

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup.

 

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

 

George Lagarias, chief economist at audit firm Mazars, also fears a ‘grim outlook’ for the UK economy:

 

“October GDP grew slightly more than expected, at 0.5%, mostly due to an improvement in retail sales. Today’s number does little to change the grim outlook for the UK economy.

 

Markets still expect a recession early next year. Demand is set to be weak, as high energy prices persist and winter has really just begun. Meanwhile, the jobs market is projected to remain tight for months, and thus inflation persistent, until new workers have been trained appropriately to reduce the mismatch between the skills required and those available.

 

Despite October’s growth, it would take a significant turnaround in policymaking and/or global conditions to change the downward British economic trajectory.”