UK suffering "annus horribilis" as poised to enter recession

(Alliance News) - UK gross domestic product numbers were not as bad as feared and the impact of the Queen's funeral also hurt September economic progress, but the downward path for the nation's economy "remains clear", analysts at Handelsbanken said.

A 0.2% quarter-on-quarter GDP fall in the third quarter of 2022 was a slightly better outcome than expected, though it means the UK is halfway to a technical recession. The third-quarter figure came in above FXStreet cited consensus of a chunkier 0.5% decline.

"While the numbers might be slightly better than anticipated on a quarterly basis, the monthly and quarterly data are calculated separately, the overall path remains clear and debate around the impact of the extra holiday for the Queen's funeral does not alter that course. The signs of a slowdown have been apparent for some time, consumer confidence has been languishing at all-time lows and even business confidence, which remains more positive, has moved into negative territory," Handelsbanken analyst James Sproule commented.

Though the number from the Office for National Statistics was not as bad as feared, it may suggest the UK is already in recession, as the Bank of England predicted. The long-standing definition for a technical recession is two successive quarterly GDP falls.

The BoE has predicted that the UK will enter recession in the fourth quarter of 2022.

"The UK economy is expected to remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter," the BoE said.

It would be the longest recession since the 1920s.

Nicholas Hyett, an analyst at investment service Wealth Club, said: "Were it not for the disruption caused by the Queen's funeral - during which many businesses shut - it's just possible the UK economy could have scraped a positive performance in Q3. But despite that perhaps surprisingly strong result, the Q3 GDP announcement is full of warning signs. Inflation is squeezing consumer spending, inward investment has fallen and supply constraints are restricting activity in the manufacturing and construction sectors. The mini-budget turmoil only kicked in right at the end of the period - and that is likely to have left Q4 off to a poor start.

"With consumers battening down the hatches for a tough winter and the government proposing substantial tax rises and spending cuts, we think the economy will shrink again in Q4 - officially pushing the UK into recession. With the Bank of England predicting recession could stretch well into late 2023 or even beyond, the Queen's funeral may end up marking the start of an 'annus horribilis' for the whole of the UK."

Analysts at Lloyds noted the third-quarter GDP fall was the first "non-pandemic-related" quarterly economic decline for the UK since 2012.

"Slowing momentum globally, higher prices and tighter fiscal and monetary policies pose significant headwinds to GDP growth in the coming quarters," Lloyds added.

Eyes now turn to the Bank of England. Analysts at ING expect a terminal bank rate of 4%.

ING added: "Ultimately a lot will depend on next week's budget announcements. A lot of the focus understandably will be on how the chancellor closes the forecasted fiscal deficit in 2026/27. But above all, we’ll be looking for details on how the government will make its energy support less generous from April, something which has the greatest scope to reshape the 2023 outlook."

By Eric Cunha; [email protected]

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