Jeremy Hunt, the Chancellor of the United Kingdom, has predicted that the economy will worsen before it improves, following the release of data showing that it contracted more between August and October.
The economy declined by 0.3% during the past three months due to the impact of rising costs on firms and people, and the United Kingdom is expected to enter a recession.
He stated, “These data demonstrate that the global and local economies are in a precarious state.”
“And it will become worse before it gets better.”
During the past three months, economic activity in the United Kingdom slowed in every major sector, including manufacturing, construction, and services.
A nation is in recession when its economy contracts for two consecutive three-month periods.
Mr. Hunt stated in his Autumn Statement last month that the United Kingdom was already in recession. This is anticipated to be confirmed formally at the start of the next year when economic data for October to December is disclosed.
A recession is an indicator that a country’s economy is performing poorly. During a recession, companies often earn less money, and the unemployment rate rises. Additionally, it is difficult for graduates and high school dropouts to obtain their first employment.
It also implies that the government receives less tax revenue to spend on public services such as education and healthcare.
The Bank of England recently stated that the United Kingdom is experiencing the greatest economic downturn since records began, predicting that it will continue through the first part of 2024.
Recently, the independent forecaster Office for Budget Responsibility projected that the recession would endure just over a year.
The Office for National Statistics reported a small respite in October when the GDP increased by 0.5% compared to the previous month (ONS). However, this comeback occurred after production in September was negatively impacted by the additional bank holiday for Queen Elizabeth’s royal funeral, which caused some businesses to close or have reduced hours.
Martin Beck, the chief economic consultant for the EY Item Club, stated that even though the current quarter began favorably with October’s increase, there is a “good probability” that the economy will decrease.
“The near-term outlook remains bleak,” he added. “Consumers continue to struggle under the weight of high inflation, and much of the impact of this year’s interest rate hikes has yet to be felt.”
The Bank of England boosted interest rates from 2.25 percent to three percent last month, the largest increase since 1989. On Thursday, the Bank is anticipated to announce a further hike of 0.5 percentage points to 3.5%.
Donald Nairn, the owner of the Edinburgh-based toy store Toys Galore, attributed his customers’ reluctance to purchase in part to rising interest rates.
“Most people are struggling because their prices have increased – interest [rates], fuel, and food – but their earnings have not kept pace, so everything is tight.”
He stated that while individuals will still purchase toys as birthday or holiday gifts, they may not travel into town to do so or the products will be smaller.
“Had you asked me in 2019 what the next few years would be like, I could not have imagined in my wildest fantasies that they would have been as difficult as they have been,” he continued.
Rachel Reeves, Labour’s shadow chancellor, stated that Monday’s numbers “illustrate the inability of this Conservative government to expand our economy, leaving us behind on the world stage.
According to Darren Morgan, director of economic statistics at the ONS, some businesses reported that strike action had disrupted their operations.
Mr. Morgan stated on the BBC’s Today show, “We speak to approximately 40,000 businesses every two weeks, and one in eight of them tell us they were affected by industrial action in October.
They informed us that the most typical effects were a lack of access to essential goods and services and an inability to work at full capacity.
This month and into the New Year, the United Kingdom will face additional strikes over salary and working conditions. On Tuesday, around 40,000 train and rail workers will strike as part of a series of strikes.
This week, Royal Mail employees will also continue their industrial action with planned strikes on Wednesday and Thursday.
“Businesses tell us that the rail strikes have impacted hospitality particularly hard,” Mr. Morgan added.
In addition, he stated that industrial action at ports like Felixstowe has “impacted logistics and shipping industries.”
Tuesday’s employment data from the ONS will include information on the number of days lost due to strikes in October.
At first glance, the 0.5% gain between September and October seemed to defy all projections of a continuous decline.
Growth of this magnitude in a month represents a significant rebound. Then you realize it’s for purely artificial reasons, not a mini-recovery. Car sales and other consumer-facing services did increase significantly month-over-month, but only because we all had an extra day off the month before due to the Queen’s death.
Other numbers indicate a recession. The weakness of consumer-facing services, such as retail, restaurants, and recreation, which are 8.9% below their pre-pandemic levels. And the steep decline in energy and gas use in October, down 4% from the previous year.
However, the three-month numbers are more trustworthy and reveal the true picture. The UK economy, along with much of the rest of the world, is expected to continue to contract through the end of next year, as activity has decreased by 0.3%.
We do not yet know how long it will continue after that or how severe the constriction will be.
