Economy falls

Recession looms as GDP shrinks | markets buoyed by US data

Jeremy Hunt
Jeremy Hunt: ‘we are not immune from global challenges’

The UK economy shrank by 0.2% between July and September driven largely by falls in manufacturing.

A second quarter of decline would plunge the country into recession and the Bank of England said it will be the longest on record, lasting until 2024.

Darren Morgan, director of economic statistics at the Office for National Statistics, said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.

“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries.

“Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”

The ONS added that gross domestic product (GDP) had fallen by 0.6% in September alone, in part due to the Queen’s funeral.

In a statement, Chancellor Jeremy Hunt said: “We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.

“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.

“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.” 

Additional bank holidays, a further winding down in spending related to Covid and an extended period of oil field maintenance have all impacted upon the fall in GDP within the period.

In the previous quarter (Q2 2022) the economy is estimated to have grown by 0.2%, revised up from a fall of 0.1% in the first estimate.

The International Monetary Fund’s latest forecast in October downgraded their expectations for global growth compared to earlier this year, with one third of the global economy expected to experience a recession this year or next.

The Chancellor will publish the government’s fiscal rules alongside a full forecast from the independent Office for Budget Responsibility, and other measures, at the Autumn Statement on 17 November.

Alpesh Paleja, CBI Lead Economist, said: “The latest GDP data likely marks the start of a downturn for the UK economy, which could last for most of the coming year. Even accounting for an extra bank holiday in September, it’s clear that underlying activity has weakened – as shown by our recent business surveys.

“A weaker growth outlook and persistently high inflation will make for some difficult decisions on economic policy.

“The Autumn Statement must learn the lessons of the 2010s: fiscal sustainability and lifting trend growth are both immediate priorities.

“Alongside reassuring markets and protecting the most vulnerable, the government should safeguard capital spending and investment allowances to drive private sector growth.”

Global markets

London was expected to extend Thursday’s late rally after US inflation figures came in lower than expectations, raising hopes that the Federal Reserve may ease the pace of its interest rate hikes.

The FTSE 100 index closed 79.09 points (1.1%) higher at 7,375.34 and Wall Street responded with strong gains.

The tech-heavy Nasdaq Composite index notched its largest-ever daily points rise, up 7.4%. The Dow Jones Industrial Average added 3.7%, while the S&P 500 jumped 5.5%.

Stocks in Asia also surged this morning. The Shanghai Composite in China was 1.7% higher and the Hang Seng in Hong Kong jumped 7%. In Tokyo, the Nikkei 225 rose 3%.

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