On the same day the Bank of England hiked interest rates by three quarters of a point to 3% – last Thursday – it warned the UK was facing the longest recession of the last century, with two difficult years before unemployment figures doubled would.
This Friday, the National Statistics Office (ONS) confirmed the first signs of this path. UK GDP contracted 0.2% in the third quarter of the year. The figure stands in sharp contrast to data from the EU, whose economy grew by 0.2% over the same period. The disruption in the country’s activities caused by the death of Elizabeth II (September 8), during which the monarch’s funeral was declared a national holiday, caused economic activity to fall by 0.6% in September and worsened quarterly data.
Economists speak of a recession when there are two consecutive quarters of negative growth. Although the consensus of experts expected GDP to fall by 0.5% between July and September, which turned out to be lower, the same consensus expects the figure to remain negative in the last quarter of 2022 and that the UK will technically enter a recession by 2023. “I have no illusions. I know we have a very tough road ahead of us, which will require the adoption of extremely difficult decisions that will allow us to restore confidence and economic stability,” said Britain’s Chancellor of the Exchequer, Jeremy Hunt, upon learning of the new data .
High inflation, now at 10.1%, together with the rise in interest rates, has helped deepen the cost of living crisis already affecting Brits. High energy prices, rising mortgage payments and shopping basket prices, which are even worse in the UK than on the European continent due to the consequences of Brexit, have accelerated the onset of the recession. The service sector, which accounts for three quarters of the country’s activity, has taken the hit of inflation and the real decline in families’ purchasing power. “Low reserves and accumulated resources mean small businesses are far more vulnerable to bad times, especially at a time when confidence is dwindling among both consumers and entrepreneurs,” warned Martin McTague, chairman of the British Small Business Confederation. “The government must now show that it understands the scale and seriousness of the problem,” he added.
The Sunak executive has promised to unveil its fiscal plans and spending trajectory on November 17 in a bid to calm markets for good after the shock caused by the hapless former Prime Minister Liz Truss’ announcement of tax cuts. The Economics Minister must explain the conditions and measures to reduce a budget deficit that experts calculate at more than 60,000 million euros. UK markets and media are already anticipating tax hikes and government spending cuts reminiscent of the austerity era that followed the 2008 financial crisis. However, Sunak and his minister are aware that two years ahead is precisely the deadline for the next general election. “When the recession comes, we’re going to try to make it as quick and as shallow as possible,” Hunt said, “so we can protect businesses that are struggling and give families hope that we’ll get through this in some way.” that we can.” where the most vulnerable are protected.”
This Friday’s data confirms that the UK is the only one of the G-7 advanced economies that has yet to fully recover to its pre-pandemic levels.
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