UK ‘still facing recession’ despite economy returning to growth in October – business live

The UK recession is likely to deepen early next year, warns Raj Badiani, principal economist at S&P Global Market Intelligence:

Badiani says the 0.3% contraction in August-October shows the UK economy is faltering:

“The return to growth in October was expected and supports our assessment that the anticipated recession is likely to be shallow at first before deepening in early 2023.

Overall, the economy faltering in the three months to October suggests the recession appeared to start in the third quarter 2022, which is expected to last for four quarters.”

The UK economic picture remains downbeat despite stronger growth in October than expected, says Melanie Baker, senior economist at Royal London Asset Management.

Baker points out that UK interest rates are likely to rise again on Thursday, when the Bank of England announces its monetary policy decision:

“The bounce in October GDP may have been a touch stronger than consensus expected after the extra bank holiday hit output in September, but taking September and October together paints a downbeat picture of UK economic growth going in to Q4. The level of GDP is barely above where it was pre-pandemic, part of the bounce in services output was down to vaccination and test and trace activity and more than half the manufacturing subsectors saw declines in output.

“The UK could escape a technical recession (for now) if November and December output was flat, but falling output would be more consistent with the picture being painted by business surveys.

“With inflation as strong as it is, and despite the downbeat picture for economic activity, another Bank of England rate hike is very likely on Thursday.”

The money markets are anticipating a 50 basis point hike, which would take Bank of England base rate up to 3.5%, from 3% currently. Rates are forecast to peak at 4.5% next summer.

The UK property sector also appears to be cooling.

UK home-sellers cut their asking prices at the quickest pace in four years after the jump in interest rates deterred buyers, Rightmove reports this morning.

The UK’s biggest property website said the average asking price was £359,137 in early December – about £7,862 less than a month previously.

The fall in asking prices followed a 1.1% decrease in November’s prices, and will be seen as further evidence that the property market is rapidly cooling.

Here’s the full story:

Chancellor Jeremy Hunt has said the UK’s economy was “likely to get worse before it gets better” after this morning’s GDP report showed a bounce-back in growth in October, but a contraction over the last quarter.

Hunt also told the BBC he did not know whether inflation had peaked or not (we get November’s inflation report on Wednesday).

Great Britain’s electricity system operator has put two coal-fired power stations on emergency standby to keep the lights on, as the weather turns colder.

National Grid Electricity System Operator (ESO) said the two “winter contingency coal units” will be available if required on Monday as temperatures dip below zero and demand soars.

It said the public “should continue to use energy as normal”, my colleague Jasper Jolly explains.

The government this summer asked the owners of coal-fired power stations to slow closure plans as ministers looked to shore up energy supplies following the invasion of Ukraine by Russia. Russia was previously a big supplier of natural gas to Europe, so the invasion roiled global energy markets and prompted a scramble for alternatives.

The coal plants in North Yorkshire that are preparing to operate on Monday are owned by the energy company Drax. They will only operate if instructed to do so by National Grid, and Drax will not be able to sell the electricity on the open market.

It comes after temperatures dropped as low as -8.6C on Sunday in Marham, Norfolk, according to the Met Office. It had issued yellow weather warnings for snow or ice for large parts of the country on Monday morning, with snowfall causing travel disruption across south-east England, including London, and northern Scotland.

The drop in temperatures prompted UK power prices to hit a record high on Sunday.

Here’s the full story:

The government must step in to stop a damaging recession and job losses, the Trades Union Congress (TUC) says.

Following the news that quarterly GDP fell by 0.3% in the three months to October, TUC General Secretary Frances O’Grady says:

“With quarterly GDP falling, ministers should step in to stop a damaging recession and job losses.

“Britain needs a pay rise. Rishi Sunak should stop attacking working people defending their pay and sit down to negotiate fair pay rises with unions.”

Full story: UK economy returns to growth as GDP rises 0.5% in October

Richard Partington

Britain’s economy returned to growth in October despite concerns over a lengthy recession, as activity bounced back from the impact of the additional bank holiday for the state funeral of Queen Elizabeth II.

The Office for National Statistics said gross domestic product (GDP) rose by 0.5% on the month, after a decline of 0.6% in September when many businesses closed their doors during the national mourning period.

Car sales rebounded after a poor month amid a wider recovery in the country’s dominant service sector, while there was strong growth in activity in the health sector amid a rise in GP appointments, A&E attendance and the Covid-19 autumn booster campaign.

Construction continued a strong run, driven up by housebuilding, while manufacturing output grew.

However, GDP shrank by 0.3% in the three months to October, reflecting concerns over the strength of the economy as consumers and businesses tightened their belts amid the highest rates of inflation for 41 years.

More here:

On the face of it, 0.5% growth in a month is pretty pacy.

But unfortunately, October’s expansion partly reflects the disruption from September’s state funeral.

Over the last three months, as Labour’s Rachel Reeves points out earlier, the economy contracted by 0.3%.

Kitty Ussher, chief economist at the Institute of Directors, warns that the UK economy is slowing:

“At a first glance, businesses worried about prospects for the UK economy can take heart from news that GDP growth was strongly positive in October, growing 0.5% compared to September even at a time when there was both financial and political instability. In particular, consumer-facing services like retail, travel and recreation all recorded strong growth on the month.

“However, the growth in October is mainly a rebound from the negative economic impact of the additional bank holiday for the state funeral in September. Because it was a one-off event, this bank holiday was not included in the usual seasonal adjustments of September’s data.

“Overall, today’s data does not alter the picture of a slowing economy. Taking a three-month view, the economy contracted by 0.3% from August to October. It is this longer-term trend that will have more impact on the [Bank of England’s] Monetary Policy Committee when it meets on Thursday to consider whether the time has come to slow the pace at which interest rates are rising.”

City experts are warning that the UK is still heading into recession.

The 0.5% increase in GDP in October does not mean that the downturn has been averted.

Jeremy Batstone-Carr, European Strategist at investment bank Raymond James, says rising inflation and higher interest rates are hitting growth:

“This tentative rebound from sharply falling GDP in September may look like a positive step back toward growth, but we should not get over-excited. Half of September’s fall in GDP was due to the one-off bank holiday for the Queen’s funeral, so we were always likely to see a correction as the UK returns to regular working days. Today’s GDP figures flatter to deceive, concealing an otherwise-shrinking economy.

“The economy is no longer teetering on the edge of recession; it is fully in one. We are now feeling the pain of both relentless inflation and interest rate rises, which are both crippling business and household spending. The Bank of England’s Monetary Policy Committee is divided on how sharply to rise base rates, but it looks increasingly likely we will be living with another 0.5% increase by the end of this week.”

The rise in GDP in October is a ‘false dawn’, warns Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales).

Thiru points out that the Bank of England is likely to raise interest rates by another half a percentage point on Thursday, from 3% to 3.5%, which would dampen growth.

“October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was supressed by the Bank Holiday for the Queen’s funeral.

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup.

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

George Lagarias, chief economist at audit firm Mazars, also fears a ‘grim outlook’ for the UK economy:

“October GDP grew slightly more than expected, at 0.5%, mostly due to an improvement in retail sales. Today’s number does little to change the grim outlook for the UK economy.

Markets still expect a recession early next year. Demand is set to be weak, as high energy prices persist and winter has really just begun. Meanwhile, the jobs market is projected to remain tight for months, and thus inflation persistent, until new workers have been trained appropriately to reduce the mismatch between the skills required and those available.

Despite October’s growth, it would take a significant turnaround in policymaking and/or global conditions to change the downward British economic trajectory.”