Recession worries mounts as UK economy shrinks by 0.2% in second quarter
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Jeremy Hunt warned today of a “tough road ahead” as it was revealed that the economy was slipping in the third quarter.
The chancellor suggested he is engaged in a damage reduction exercise following a 0.2 percent GDP decline between July and September, and said his fall statement aims to make any recession “faster and shallower.”
The figure was not as bad as feared, after the Bank of England and analysts forecast a 0.5 percent contraction for UK plc in the three months.
However, it suggests that the UK may already be in a downturn, technically defined as two consecutive quarters of decline.
Although the second quarter saw marginal growth of 0.2 percent, the Bank of England warned last week that the country is at risk of entering its longest downturn in a century.
The chancellor said the GDP figures emphasized the need to bring inflation under control and reduce public debt.
But he could have been given some leeway, as a worse result could have increased the pressure on public finances.
The decline was mainly driven by manufacturing, with the high-performance services sector largely flat.
September was particularly dire with a 0.6 drop in the month – due in part to lower activity during the mourning of the queen.
That was partly offset by the figure for the month for August was revised from a 0.1 percent contraction to a 0.1 percent growth.
The UK economy shrank 0.2 percent in the second quarter of the year, according to the ONS
The ONS estimate for the third quarter was not as bad as the Bank of England forecasts suggested last week – although it will be revised
The UK’s Q3 figure was worse than other major economies
Darren Morgan, ONS Director of Economic Statistics, said: “With September showing a remarkable decline, partly due to the extra public holiday for the Queen’s funeral, the economy generally shrank slightly in the third quarter.
The quarterly decline was driven by manufacturing, which saw widespread declines across most industries. Services were broadly flat, but consumer sectors underperformed with a notable decline in retail.’
Pressed on whether the UK is now in the throes of a slump, Mr Hunt told broadcasters: ‘Well, the Bank of England says we’re probably going to be in a recession. This is disappointing, but not entirely unexpected news.’
He said the government now needs to “present a plan to the country to address the root cause of the problems we face – namely inflation – and a plan that protects the most vulnerable, which is what I need to do next Thursday.” ‘.
“According to the International Monetary Fund, about a third of the global economy is in recession this year or will be in recession next year.
‘And that is mainly due to the very high global energy prices. We in the UK are not immune to that and what we need is a plan that shows how we get through this difficult period. If it’s a recession, how are we going to make it shallower and faster so we can protect companies that are really struggling, as these numbers show.
‘But also give families so much hope that we will come to the other side with the most vulnerable people protected.’
We are not immune to the global challenge of high inflation and slow growth, driven largely by Putin’s illegal war in Ukraine and his arming of gas supplies.
“I am under no illusion that there is a difficult road ahead – one that will require extremely difficult decisions to restore confidence and economic stability.
But to achieve sustainable long-term growth, we need to get inflation under control, balance the books and reduce debt.
‘There is no other way.
“While the global economy faces extreme turbulence, the long-term fundamental resilience of the UK economy is cause for optimism.”
Jeremy Hunt warned of a ‘tough road ahead’ after the numbers were released today
September was a particularly grim month, according to the ONS, partly due to less activity during the mourning of the Queen
The CBI urged the government to “learn the lessons” of the past decade.
Alpesh Paleja, a chief economist at the CBI, said: “The latest GDP data probably marks the beginning of a downturn for the UK economy, which could last for much of the next year.
“Even if we factor in an additional holiday in September, it is clear that underlying activity has declined, as our recent company surveys show.
A weaker growth outlook and continued high inflation will make for some difficult economic policy decisions.
‘The autumn statement should learn lessons from the 2010s: fiscal sustainability and upward trend growth are both immediate priorities.
“As well as reassuring markets and protecting the most vulnerable, the government must secure capital expenditures and investment grants to boost private sector growth.”
Shadow Chancellor Rachel Reeves said: “Today’s numbers are another page of failures in the Tories’ record of growth, and the reality of this failure is that family finances are tight, British businesses are lagging and more fear of the future.
Britain’s unique exposure to economic shocks is due to a Conservative-led decade of weak growth, low productivity and under-investment and rising inequality.