The Office for National Statistics (ONS) estimates GDP fell 0.2 per cent in Q3 (July to September 2022), which is actually better than the 0.5 per cent contraction expected.
However, on a month-by-month basis, the figure fell 0.6 per cent in September, affected by the bank holiday for the State Funeral of the Queen, as businesses closed or “operated differently”, the ONS said.
It noted a slowing of output in services, production, construction, and manufacturing, as household expenditure fell 0.5 per cent in the quarter.
UK on cusp of recession
While technically the ‘recession’ label can only be applied when an economy shrinks for two consecutive quarters, “given the bleak economic picture 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”, according to Joshua Raymond, director at online investment platform XTB.
For Paul Dales, chief UK economist at Capital Economics, the figures “are hardly a good backdrop for the tightening in fiscal policy the Chancellor is expected to announce in the Autumn Statement next Thursday”.
He added that with the effect of inflation, a weakening housing market and softening global demand, it will mean that real GDP continues to fall for about a year, “resulting in a peak-to-trough fall in GDP of around 2 per cent”.
‘Extremely difficult decisions ahead’
In response to the GDP figures, Chancellor of the Exchequer, Jeremy Hunt, said: “I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability.
“But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”
For Kevin Brown, savings specialist at Scottish Friendly, the latest readings suggest tougher measures which will impact households already squeezed amid the cost-of-living crisis.
He said: “All eyes are now on what the Treasury does next week, and the forecasts that come with the Autumn Statement. It looks increasingly like fresh tax rises will ratchet up tough conditions for households, with frozen thresholds working with inflation to put even more pressure on incomes, while interest rates remain too low to relieve savers.”
‘Mortgage lenders have interesting decisions to make’
Meanwhile, mortgage lenders will be looking for some clarity from Hunt next Thursday amid all the ongoing uncertainty, according to Richard Pike, Phoebus Software chief sales and marketing officer
He said: “For the mortgage market, we have been through recessions previously and have survived through a mix of tenacity and innovation.
“In this instance, predicting arrears performance, especially in a rising interest rate and inflationary environment against a backdrop of uncertainty, means lenders have some interesting decisions to make on how to prepare for so many unknowns.
“Hopefully, the Chancellor’s Autumn statement next week will provide some substance and clarity against which we can all plan.”
