The UK economy is shrinking due to the looming threat of recession | Bot To News


The ride down may be shallow or steep, but either way the European Union and Britain may begin to slide into recession.

Britain’s economy shrank by 0.2 percent in July, August and September compared with the previous three months, the Office for National Statistics reported on Friday. It was a decline that was expected to continue and spread to the continent by the end of the year.

Many countries are likely to enter recession in the last three months of 2022, said Paolo Gentiloni, th.e The European Commissioner for the Economy said on Friday. “The EU economy is at a turning point,” he said. “Recent Survey Data Shows Contraction for Winter.”

But while central bankers in Britain warned of a “prolonged” recession lasting up to two years, the European Union predicted the 27 member states would face a “short-term and not excessively deep” recession.

Indeed, Mr Gentiloni said he expects the union to end 2022 with better-than-expected growth of 3.3 per cent, although that overall growth is likely to weaken significantly next year, to just 0.3 per cent.

The differing views illustrate how the economic fallout of the pandemic and the Russian invasion of Ukraine is having an uneven impact on a collection of countries in the region.

Britain and the European Union are suffering from the twin scourge of rising inflation and slowing or declining growth. The war and retaliatory sanctions against Russia, one of the world’s largest producers of energy and grain, have caused global prices of fuel, food and fertilizers to soar. Supply chain disruptions stemming from the pandemic and ongoing Covid-19 shutdowns in China — most recently in the manufacturing hub of Guangzhou — have added to the pile of economic woes, as have climate-related disasters.

In Germany, Europe’s largest economy, the annual inflation rate according to one measure reached 10.4 percent in October. In Britain, inflation hit 10.1 percent in September, the highest level in 40 years, and is expected to rise further before it peaks. BBC radio talk shows are dominated by people worried about whether they will be able to afford heating and lighting in their homes.

“We have a tough road ahead,” said Jeremy Hunt, Chancellor of the Exchequer. announced on Friday, “which will require an extremely difficult decision to restore confidence and economic stability.”

Preliminary estimates from the Office for National Statistics showed that the slowdown in Britain was broad – including the manufacturing and service sectors – and meant the country’s gross domestic product, or total output, remained below pre-pandemic levels. The fall was particularly large in September, down 0.6 percent from the previous month, although the number was affected by the death of Queen Elizabeth II, which led to widespread, unplanned business closures.

The quarterly contraction was smaller than expected – economists polled by Bloomberg had expected a 0.5% decline – and yields on 10-year British government bonds fell briefly after the announcement before rising slightly to 3. 33 percent.

A recession is traditionally defined as a noticeable decrease in economic activity lasting several months.

The Bank of England underlined its determination to stem rising inflation by raising interest rates despite the risk of tipping the economy into recession, although it signaled it was unlikely to raise rates as high as traders had expected. Last week, the Bank raised its key interest rate again and predicted that Britain’s economy would contract in the second half of this year and shrink until mid-2024.

Higher interest rates, which make it more expensive to borrow money for mortgages and investments, dampen business and consumer spending and can increase unemployment.

However, the British economy is also suffering from a series of self-inflicted wounds by the ruling Conservative Party. The widely criticized economic plan put forward by Liz Truss, then prime minister, in September, which included steep, unfunded tax cuts and big spending increases to help households afford rising energy bills, sent shockwaves through financial markets.

The ensuing political and economic instability led to a stunning policy reversal and the resignation of Mrs Truss. Rishi Sunak, the new prime minister, and Mr Hunt are expected to announce their economic plan next week, which is expected to include tax increases, spending cuts and debt reduction.

The package “will reinforce Britain’s gloomy economic outlook,” predicted Pantheon Macroeconomics.

There is also broad agreement among economists and analysts that Britain’s decision to leave the European Union in 2016 was a major and long-lasting blow to its economy.

Very few countries in the European Union are expected to fall into negative growth next year, but the outlook for Germany, which has been hit hard by the loss of a Russian gas pipeline, is bleak. The European Union estimates that its economy will shrink by 0.6 percent in 2023.

Across Europe, inflation is expected to persist at a higher level than previously forecast. The strong labor market remains what Mr. Gentiloni called a “bright spot.”

The picture is darker in Britain, where around 2.5 million people are out of the workforce due to long-term illnesses, leaving employment below pre-pandemic levels.

Christmas lights are being switched on across London, but across the country fewer consumers visited shopping centers and high streets last week than the week before, the Office for Statistics said. Consumer confidence hovers near record lows, while businesses report a drop in orders. The number of people looking to buy a home fell last month as mortgage rates rose.

“The UK economy has once again slipped to the back of the G7 pack,” Pantheon said in its daily newsletter, referring to the grouping of some of the world’s largest developed economies.





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