The Office for National Statistics (ONS) estimates GDP has fallen by 0.3 per cent in August 2022, lower than the 0% consensus. It follows growth of 0.1 per cent in July, revised down from 0.2 per cent.
The ONS said there has been a “continued slowing in the underlying three-month on three-month growth, as GDP also fell 0.3 per cent in the quarter to August compared to the previous three months.
Production fell 1.8 per cent following a 1.1 per cent fall in July and was the main contributor to the downward drag on GDP. Manufacturing fell 1.6 per cent while services fell 0.1 per cent following growth of 0.3 per cent in July.
Meanwhile construction grew by 0.4 per cent after growth of 0.1 per cent in July, and output in consumer-facing services fell 1.8 per cent in August following growth of 0.7 per cent in July.
Recession inevitable
Samuel Fuller, director of Financial Markets Online, said: “This is a big miss against expectations, with the economy falling harder than forecast. It means a third quarter contraction is all but guaranteed given the impact the Queen’s funeral will have had in September.
“This puts a recession for the second half of the year firmly on the cards, coming in at the front end of Andrew Bailey’s expectations.”
He added that recessions are often accompanied by rising unemployment, “which isn’t something we’ve seen so far”.
Fuller said: “Unemployment is still at multi-decade lows but what is already present is a significant rise in government borrowing. This surprise change in direction at the mini Budget means Bailey doesn’t know whether he’s coming or going at the moment.”
Bank of England versus the government
Paul Dales, chief UK economist at Capital Economics, said: “We suspect that GDP in September will fall by around 0.6 per cent, mainly due to the extra drag from the bank holiday for the Queen’s funeral. That would result in a 0.6 per cent q/q fall in GDP in Q3 as a whole.”
Jonathan Moyes, head of investment research at Wealth Club, said the market’s attention will remain firmly fixed on both the Chancellor and the Bank of England as they look to restore confidence and stabilise the government bond market.
“With inflation remaining high, the bank is unlikely to see weak GDP as cause for softening policy. The government on the other hand is clearly looking to stave off a severe recession with loose fiscal policy. We look forward to the detail on how this will be funded on 31 October,” he said.
Other commentators saw the falling GDP figures as being part of a wider global trend. Richard Pike, Phoebus Software chief sales and marketing officer, said: “With the International Monetary Fund cutting global GDP forecasts, the fact that our GDP estimate is down 0.3% in August following growth (albeit revised down) in July puts Britain in line with global predictions.
‘Brokers will come into their own’
Of the mortgage market, Pike continued: “The prediction that interest rates are likely to increase by up to one per cent in the next MPC meeting, is going to put more pressure on lenders and borrowers. Unfortunately, although the affordability buffer was set at 3 per cent the rising cost of a mortgage is only part of increasing costs at the moment.
“Lenders were never asked to predict how much inflation would rise if interest rates went up. Now they have to look at affordability from a much more holistic angle to assess the risk.
“House prices have already started to come down, and you will never take away the desire to own a home in the UK, so it now depends on how much prices fall in comparison to how much everything else goes up. There is always appetite somewhere, and one positive to come from today’s estimate is that new work in construction increased. Brokers will also come into their own with so many remortgage opportunities in the coming months.”
