UK economy stagnated, avoiding recession, but concerns arise about growth.
London, Nov 10 (Reuters) – The latest data from the Office for National Statistics reveals that the British economy experienced zero growth in the third quarter of the year, a result that exceeded the expectations of a 0.1% decline forecasted by economists in a Reuters poll. This stagnant growth, although technically avoiding a recession, has raised concerns about the overall economic health of the nation. Chief economist Paul Dales of consultancy Capital Economics pointed out that, despite the official zero percent change, a closer look at the data indicates a marginal decline of 0.02% in GDP. However, Dales emphasizes that the economy’s current state is not weak enough to prompt a rapid reduction in core inflation and wage growth.
James Smith at ING attributes the avoidance of a contraction to net imports, which, though volatile, prevented a decline, while both consumption and business investment experienced reductions. It is worth noting that the preliminary nature of the data from the Office for National Statistics implies that revisions are possible. The Bank of England (BoE), acknowledging the economic challenges posed by its 14 consecutive interest rate increases over nearly two years, had initially expected a flat reading for GDP in the third quarter.
The BoE’s decision to maintain interest rates at a 15-year high, despite predicting zero economic growth next year, has created a challenging environment for Prime Minister Rishi Sunak. Sunak, widely expected to call a national election in 2024, faces the pressure to implement pro-growth measures. Meanwhile, economic output per head saw a 0.1% decline in the third quarter, the first such drop in a year. The persistent weakness in Britain’s economy, which has struggled to recover the pre-2008 growth levels, puts Finance Minister Jeremy Hunt under pressure to introduce growth-focused measures in the upcoming Nov. 22 budget update.
Looking beyond the borders, the situation is no better in the euro zone, with Germany’s problems likely contributing to a projected 0.1% decline in GDP for the third quarter. Despite the BoE’s relief at avoiding a recession, attention is expected to shift to key data releases in the coming week, which may show a significant drop in headline inflation but little relief in the pace of wage growth that concerns the central bank. In September alone, Britain’s economy saw a 0.2% growth from the revised-down August figure of 0.1%, contrary to the Reuters poll expectations of no change in GDP for September. The statistics office reported a 0.1% fall in output in the services sector, broadly flat industrial production, and a 0.1% growth in construction during the three months to September. The ONS revealed that the British economy currently stands 1.8% above its late 2019 level, indicating a post-COVID recovery stronger than Germany’s and on par with France, but significantly behind the United States, where the economy has surged by over 7% from its pre-pandemic level.
