UK on the brink of recession as GDP continues to fall, Prime Minister Liz Truss pledges to accelerate economic growth

London: The UK economy appears to be slipping into recession as data showed it contracted unexpectedly in August, underscoring the challenge for Prime Minister Liz Truss to deliver on her promises to accelerate growth. Weak production and maintenance work in the North Sea oil and gas fields contributed to a 0.3% decline in gross domestic product from July, and the report also showed how a rise in inflation hit consumers. A Reuters poll of economists pointed to zero growth. July output growth was revised down to 0.1% from an earlier estimate of 0.2%, and GDP fell by 0.3% in the three months to August, the first decline since early 2021, when the country was stuck in the coronavirus crisis.

“The ongoing tightness in household finances continues to weigh on growth and has likely pushed the UK economy into a technical recession from the third quarter of this year,” said Yael Selfin, chief economist at KPMG UK.

The economy was now believed to be back to normal just before the pandemic, previously estimated to be 1.1% above that, the Office for National Statistics said. Production was down 1.6% from July and more maintenance than usual in the North Sea hit the mining and quarrying sectors, including oil and gas. It fell by 8.2%.

“Many other consumer-facing services struggled, with retail stores, hairdressers and hotels performing relatively poorly,” said US chief economist Grant Fitzner.

GDP in September is likely to be weakened by a one-time public holiday to mark Queen Elizabeth’s funeral. Beyond that, the UK economy appears to be slowing sharply as rising inflation hits households and forces the Bank of England to raise interest rates quickly, even as activity stagnates.

Samuel Tombs, an economist at Pantheon Macroeconomics, said about a third of households were out of meaningful savings and the 30% with a mortgage would likely cut spending as borrowing costs rose.

“The combination of the protracted blow to real incomes from mortgage refinancing, the usual delays between changes in corporate sentiment and spending decisions, and the constraints currently facing macro-policy makers suggest that the recession will not end until late 2023 at the earliest,” says Tombs. said.

The International Monetary Fund said Tuesday it expected UK GDP to grow in 2023, but only by 0.3%. That was stronger than forecasts that the economies of Germany and Italy will contract next year as they feel the full force of gas supplies from Russia as a result of the war with Ukraine.

Truss and Finance Minister Kwasi Kwarteng have promised to accelerate economic growth, but their plan for unfunded tax cuts has sparked financial market turmoil and raised expectations about how quickly the BoE will drive up borrowing costs. The central bank is also trying to curb the rise in market interest rates, which has put pension funds under heavy pressure. It has said it will end its emergency bond-buying program on Friday.

However, amid calls from the funds for an extension of the deadline, the Financial Times on Wednesday quoted three sources as saying the BoE had privately signaled to lenders that it was willing to continue the emergency program after Friday if market conditions called for it. .

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