Daily Management Review

UK Economy Shrank More Than Initially Estimated


UK Economy Shrank More Than Initially Estimated
According to updated statistics, the UK economy shrank more than initially estimated in the three months leading up to September. According to the Office for National Statistics (ONS), business investment performed worse than anticipated, causing the economy to contract by 0.3% as opposed to the 0.2% previously estimated.
Additionally, growth estimates for the first half of 2022 have been reduced.
As rising prices hamper growth, the UK is predicted to enter a recession in the last three months of the year.
When a nation's economy contracts for two consecutive quarters of three months, that nation is said to be in a recession. Typically, as business profits decline, wages decline, and unemployment rises, the government has less tax revenue to spend on public services.
"Our revised figures show the economy performed slightly less well over the last year than we previously estimated," according to Darren Morgan, director of economic statistics at the ONS, with manufacturing "notably weaker."
Household spending "fell for the first time since the final Covid-19 lockdown in the spring of 2021," he continued, and household incomes continued to decline when rising prices were taken into account.
The ONS reported that the gross domestic product (GDP), a measure of the size of the economy, had been revised downward from the previous estimate of 0.4% to now be 0.8% below where it was before the pandemic struck.
As a result of rising energy and food prices, inflation has reached its highest level in 40 years, which has had a negative impact on the economy.
It implies that both businesses and consumers are reducing their spending.
The ONS also reported that the economy expanded less than initially anticipated in the first half of the year, growing by 0.6% in the first quarter and 0.1% in the second quarter, in addition to its revision for the period from July to September.
The ONS previously reported that growth in those quarters was 0.7% and 0.2%, respectively.
The ONS frequently updates its growth projections. It generates a preliminary estimate of GDP about 40 days after the relevant quarter, at which point only about 60% of the data are available; the estimate is subsequently revised as more data become available.
In stark contrast to the eurozone, which has grown 2.2% since the last count, or Canada, which has grown by 3%, is an economy that is still 0.8% smaller than it was before the pandemic.
The OECD, a Paris-based think tank, recently predicted that while other economies resumed growth in 2023, the UK economy would continue to contract more than the rest of the G7.
A growing body of evidence suggests that Brexit is partly to blame for this underperformance.
According to data released by the ONS last week, the economy shrank by 0.3% from August to October.
The UK will experience a recession "lasting just over a year," according to the Office for Budget Responsibility (OBR), the government's independent forecaster.
According to the OBR, the economy will contract by 1.4% in 2023 before growth gradually resumes.
As a result, it anticipates that as the Bank of England raises interest rates to rein in rising prices, the unemployment rate will increase and home prices will drop significantly.
The Bank increased its key rate last week to 3.5%, the highest level in 14 years, which is increasing the cost of loan and mortgage repayment for those who have them.
The US and the eurozone are also anticipated to experience a recession next year, so the UK is not the only nation whose economy is weakening.
Yet Pantheon Macroeconomics' Gabriella Dickens predicted that the UK would "suffer the deepest recession among major advanced economies in 2023."
Jeremy Hunt, the chancellor, attributed the economic problems to Vladimir Putin's invasion of Ukraine.
"High inflation driven by Putin's invasion of Ukraine is slowing economic growth across the world. No country is immune, least of all Britain," he said.