UK GDP data released this morning suggests after economic activity fluctuating for a number of months, the UK has likely entered a recession.
UK GDP fell 0.3% in August and the previous expansion in July was revised down to a 0.1% contraction.
“The latest UK GDP numbers were disappointing. Activity unexpectedly shrank 0.3% in August, as a result of weakness in the manufacturing and energy sectors, and the gain in July was revised lower to 0.1%,” Rupert Thompson, Investment Strategist at Kingswood.
He continued to point out that while economic activity was contracting, the Bank of England is in no position to ease monetary conditions to support the economy. Indeed, their next move may damage the economy further.
“This decline looks very unlikely to dissuade the Bank of England from raising rates by an outsized 0.75%, or possibly even a full 1%, at its next meeting on 3 November,” Thompson said.
Hargreaves Lansdown analysts painted the picture of a perfect storm of unfavourable economic conditions causing further slowdowns in 2023.
“This latest data set unfortunately gels with the IMF’s recent warning that 2023 will feel like a recession for many people, and that the worst of the global growth slowdown is yet to come,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.
“A plethora of unhelpful external headwinds are blowing, holding back the UK’s ability to grow its economy.”
“At the same time, the UK consumer base is utterly bone-tired with political uncertainty, concerns about higher-for-longer inflation and the government’s ability to get things under control, following a public berating of government policies by the IMF. These all feed into a reduced willingness, and ability, for people to spend their money within the economy.”
Economic conditions will likely remain tied to central bank policy, and until the Bank of England signals an easing of rates, the UK economy will continue to suffer.