The UK economy shrank in the third quarter according to data released this morning. GDP contracted by 0.2% in the period and set the UK on a path towards recession, albeit a shallow one.
The main culprit behind the reduction in economic activity was soaring inflation that would clearly impact the economy at some point. The Bank of England has recently said the UK is heading towards a prolonged recessions and this morning’s data suggests we could already be in one.
“Technically speaking the UK won’t be in recession until it suffers two consecutive quarters of negative growth. But given the bleak economic picture and forecasts from the Bank of England, it’s quite clear this reading marks the start of what we expect to be a significant recession for the UK economy,” said Joshua Raymond, Director at online investment platform XTB.com.
Services, manufacturing and retail activity all declined in the quarter in a broad slowdown that was also impacted by the Queen’s funeral.
“It’s no surprise the service sector is shrinking, people are going as long as they can between haircuts or resurrecting lockdown methods of trimming their own locks. People are having to spend more to buy less, and they’re terrified of what a cold winter might do to already battered budgets,” said Danni Hewson, AJ Bell financial analyst.
“The manufacturing sector is struggling with a double whammy of rising energy prices and a shortage of some raw materials for some as supply issues are finally working their way through the system, but all 13 subsets of the sector were in decline.”
The initial market reaction was fairly muted with GBP/USD clinging onto gains and the FTSE 100 shrugging the data off to rise 0.3% in early trade, before falling back.
Although today’s GDP read is a stark warning for the UK economy, the better than US CPI data yesterday is by far the biggest news in town and was helping to boost risk sentiment on Friday.
