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UK economy fails to grow but sidesteps start of a recession

Published 10/11/2023, 07:14
Updated 10/11/2023, 09:16
© Reuters. People walk over London Bridge looking at a view of Tower Bridge in the City of London financial district in London, Britain, October 25, 2023.  REUTERS/ Susannah Ireland/File Photo

By William Schomberg and Andy Bruce

LONDON (Reuters) -Britain's stagnating economy failed to grow in the July-to-September period but at least managed to avoid the start of a recession, figures from the Office for National Statistics showed on Friday.

The 0% change in gross domestic product in the third quarter was a touch better than a forecast for a 0.1% fall in a Reuters poll of economists, which many analysts said was likely to represent the start of a recession.

Paul Dales, chief economist with consultancy Capital Economics, said the fine details of the data showed GDP did decline by a marginal 0.02% even if the figure was rounded to show no change.

"But the key point is that the economy is not weak enough to reduce core inflation and wage growth quickly," Dales said.

"As such, we don't expect the Bank of England will be able to cut interest rates until late in 2024 rather than in mid-2024 as widely expected."

James Smith at ING said the economy was saved from a contraction by net imports which are often volatile, while consumption and business investment fell.

The data from the Office for National Statistics is preliminary and may be subject to revision.

The BoE said last week it expected zero economic growth next year - a tough backdrop for Prime Minister Rishi Sunak who is widely expected to call a national election in 2024 - but it kept interest rates at a 15-year high as it continued to battle an inflation rate that is more than three times its 2% target.

The BoE, which acknowledges the economic pain being caused by its 14 back-to-back interest rate increases over nearly two years to August, had been expecting a flat reading for GDP in the third quarter.

Economic output per head fell 0.1% in the third quarter, the first drop in a year.

Britain's economy has failed to recover the kind of growth it enjoyed before the 2008-09 global financial crisis and the weak outlook is putting pressure on finance minister Jeremy Hunt to come up with pro-growth measures in a Nov. 22 budget update.

"The Autumn Statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services," Hunt said after Friday's data.

The situation is no better in the euro zone where problems in Germany are likely to mean that official figures due on Tuesday show GDP fell by 0.1% in the third quarter, according to a Reuters poll.

While the BoE might take comfort from the avoidance, so far, of a recession in Britain, it is probably more likely to focus on key data releases due next week which are likely to show a sharp fall in headline inflation but probably little easing in the pace of wage growth that worries the central bank.

In the month of September alone, Britain's economy grew by 0.2% from August when growth was revised down to 0.1% from 0.2%.

The Reuters poll had pointed to no change in GDP in September.

© Reuters. People walk over London Bridge looking at a view of Tower Bridge in the City of London financial district in London, Britain, October 25, 2023.  REUTERS/ Susannah Ireland/File Photo

In the three months to September, output in Britain's huge services sector fell by 0.1%, industrial production was broadly flat and construction grew by 0.1%, the statistics office said.

Britain's economy stood 1.8% above its level in late 2019, the ONS said, making its post-COVID recovery stronger than that of Germany and matching that of France but a long way behind the United States where the economy has grown by more than 7% from its pre-pandemic level.

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