UK economy contracts in Q3 as recession looms

LONDON, Nov. 11 (Xinhua) -- The United Kingdom's (UK) economy contracted by an estimated 0.2 percent in the third quarter (Q3) of this year, official figures showed on Friday. This is expected to mark the start of a long recession that could last for two years.

FIRST CONTRACTION SINCE 2021

Following a rise of 0.2 percent in the second quarter, the three months from July to September saw the first quarterly contraction since the start of 2021, when the country was under tight COVID-19 restrictions. The economy is still 0.4 percent below its pre-COVID-19 level, said the Office for National Statistics (ONS).

Monthly estimates showed the gross domestic product (GDP) shrank by 0.6 percent in September. GDP was affected by the bank holiday for the funeral of Queen Elizabeth II, when some businesses closed.

"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," said ONS director of economic statistics Darren Morgan.

Among the six Group of Seven (G7) economies that have already reported Q3 estimates, GDP only fell in the UK. It is also the only G7 country not to have seen GDP recover fully to its pre-pandemic level, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics consultancy.

"The UK economy has slipped to the back of the G7 pack again, beset by more intense headwinds from fiscal and monetary policy, and substantial long-term supply-side damage from Covid and Brexit," Tombs said.

LONG RECESSION LOOMING

A lengthy recession is looming for the UK. The Bank of England in early November said that if interest rates were to rise as much as the market expected, the GDP will continue to fall throughout 2023 and the first half of 2024. Even without more rate hikes, the economy is still expected to be falling at the end of 2023.

Many business surveys have depicted a bleak future. The S&P Global/CIPS Flash UK PMI Composite Output Index registered at 47.2 in October, and it has stayed below the neutral 50.0 no-change value since August. The GfK consumer confidence index for the UK in September hit its lowest point since records began in 1974.

Monthly comparison of independent projections published by the UK Treasury in October showed an average new forecast of 3.9 percent for UK GDP growth in 2022, and 0.3-percent contraction in 2023.

Should the UK slide into recession next quarter, it would be the quickest return to recession since 1975, according to the Resolution Foundation think tank. The UK only came out of its last recession eight quarters ago.

After the September announcement of a large-scale package of tax cuts rattled financial markets and raised severe concerns about the UK's fiscal health, the UK government has taken a U-turn and is set to raise taxes and cut spending to offer reassurance. However, economic growth is expected to take a further blow.

"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," Chancellor of the Exchequer Jeremy Hunt tweeted on Friday in response to the GDP statistics.