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Recession possibility for UK after economy slows

  • UK faces recession risk
  • Inflation slows, rates uncertain
  • Black Friday boosts sales

The United Kingdom is at risk of entering a recession, as per revised data indicating that the economy contracted from July to September.

Gross domestic product, an indicator of economic health, experienced a decline of 0.1%, subsequent to initial projections indicating stagnant growth.

In the interim, there was no expansion observed from April to June, contrary to the initial estimation of a 0.2% increase.

Economists commonly delineate a recession as a consecutive contraction of the economy for two three-month periods, or quarters.

Although concerns have existed for some time regarding the United Kingdom’s sluggish economic development, the nation has thus far managed to avert a recession.

The revised figures, according to Ashley Webb, a UK economist at Capital Economics, “may indicate that the mildest of mild recessions began” in the third quarter, which spanned July to September.

In spite of the possibility of a “small recession,” he continued, economists anticipated that economic expansion would “remain subdued throughout 2024.”

Economic growth is generally regarded favourably by the general public due to the fact that it increases the profitability of businesses, creates more jobs, and enables employers to compensate workers more.

UK Economic Outlook and Political Implications

Conversely, in periods of stagnant development or economic recession, the general sentiment among the populace is one of distress.

As employers reduce expenditure during recessions, the number of unemployed may increase, and it may be more difficult for recent graduates and school leavers to obtain their first job.

Given the impending general election in the coming year, the economy is poised to emerge as a pivotal arena for all political parties.

The “medium-term outlook” for the British economy, according to Chancellor Jeremy Hunt, is “considerably more optimistic than these figures indicate.”

As of earlier this week, data indicated that the annual rate of price increases, or inflation, decelerated significantly beyond expectations to 3.9% in the year leading up to November, from 4.6% in the preceding month.

Until recently, the Bank of England implemented a strategy of increasing interest rates with the aim of moderate inflation.

However, the positive inflation rate has generated conjecture regarding the possibility that the Bank may reduce its base rate from the present level of 5.25% in the spring of the following year. The Bank has stated at its last two rate-setting meetings that it is “too early” to contemplate a reduction in borrowing costs.

Mr. Hunt stated that the measures detailed in his Autumn Statement would “provide the greatest boost to potential growth ever recorded” due to the decline in inflation.

However, shadow chancellor Rachel Reeves stated that the prime minister “failed to grow the economy.

UK Economic Priorities and Challenges Ahead

Rishi Sunak has prioritised economic expansion as one of his primary objectives. According to Downing Street, the commitment will be fulfilled if the economy experiences growth during the October to December 2023 quarter, surpassing the growth observed in the preceding three months.

The determination of whether the United Kingdom has entered or averted recession through the publication of figures for the October to December quarter will not become evident until February.

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The official economic forecaster of the government, the Office for Budget Responsibility, has projected a 0.1% increase in GDP for the last three months of the year.

The most recent GDP data from the Office for National Statistics (ONS) indicated that consumer expenditure, which decelerated during the period, is being burdened by rising interest rates.

This is due to the fact that although increased interest rates may mitigate inflation and provide advantages to savers, they can also impede economic development by rendering borrowing money more costly for both consumers and businesses.

The ONS estimated that the disposable income of real households increased by only 0.4% from July to September, compared to a 2.3% increase in the preceding three months.

Challenges and Comparisons in UK Economic Performance

Furthermore, the company stated that it reduced its financial projections for the preceding quarter in response to new information indicating that operations in the film production, engineering and design, and telecommunications sectors were “all performing slightly worse than we had anticipated.”

Additionally, lesser companies, particularly those in the hospitality and IT industries, reported “weaker performances.”

The director of economic statistics at the ONS, Darren Morgan, stated that the economy “has been relatively flat over the past year” in terms of the “big picture.”

In comparison to other advanced economies of the G7, the United Kingdom has one of the weakest growth rates since the Covid-19 pandemic, according to the most recent data.

The UK economy has increased by 1.4% since October and December 2019, the final quarter prior to the emergence of Covid and the subsequent closure in March 2020. This growth is in comparison to the pre-pandemic level.

The United Kingdom had surpassed pre-Covid levels by 1.8%. By this metric, Germany has the worst performing economy.

Mr. Webb stated that the United Kingdom, which had previously surpassed France in the G7 rankings during the second quarter, has fallen behind France and all other nations besides Germany since the outbreak of the pandemic.

Vendor sales

On the strength of Black Friday discounts, retail sales increased by a greater amount than anticipated last month, according to data obtained separately from the ONS.

November saw a 1.3% increase in the quantity of products purchased by consumers compared to the previous month.

Although Black Friday occurred on November 24 this year, retailers reported that increased discounts and an early start to the sales event aided in boosting revenue. Non-food store sales increased by 2.3%.

John Edgar, chief executive officer of department store chain Fenwick, stated that Black Friday had “become a Black November for many retailers,” which was not in his opinion a “positive development.”

“That is not the path we have ever taken,” he stated. “I believe that over time, some individuals have come to share these sentiments and have shifted away from this sort of broad discounting.”

According to Mr. Edgar, initial December sales were below expectations. However, he added that in the last two weeks, fragrances, handbags, and Jellycat soft pets had been selling exceptionally well, with items “flying off the shelves.”

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