UK economy shank in Q3, raising recession risk
NEWSFLASH: The UK economy is on the brink of recession, after new data shows GDP shrank slightly in the third quarter of the year.
The Office for National Statistics has revised down its estimate for the economy in July-September.
It now estimates that UK GDP fell by 0.1% in the third quarter of 2023, down from the previous estimate of no growth.
The downgrade is because the UK services sector is now estimated to have fallen by 0.2% in the third quarter of 2023, revised down from a first estimate fall of 0.1%.
The ONS says:
In output terms, there was a 0.2% fall in the services sector in the latest quarter, which offset a 0.4% increase in construction output and a 0.1% increase in the production sector.
In another blow, GDP is now estimated to have shown no growth in Q2, revised down from the previous estimate of +0.2% growth.
GDP is estimated to have fallen by 0.1% in Quarter 3 (July to Sept) 2023, revised down from the previous estimate of no growth.
Meanwhile GDP is now estimated to have shown no growth in Q2, revised down from the previous estimate of +0.2% growth.
➡️ https://t.co/KjTIdncntf pic.twitter.com/xb7H0dRZKD
— Office for National Statistics (ONS) (@ONS) December 22, 2023
A technical recession is two quarters of contraction in a row, so if GDP falls in October-December, the UK will be in recession.
Key events
Capital Economics: Mildest of mild recessions may have begun in Q3
The 0.1% fall in real GDP in Q3 may mean that the mildest of mild recessions started in Q3, says Ashley Webb, UK economist at Capital Economics.
Webb adds:
But whether or not there is a small recession, the big picture is that we expect real GDP growth to remain subdued throughout 2024.
Reeves: Sunak has failed to grow economy
The news that Britain’s GDP shrank in July-September means Rishi Sunak will end the year having failed to deliver on his pledge to grow the economy, Labour says.
Shadow chancellor Rachel Reeves says:
“Rishi Sunak is a Prime Minister whose legacy is one of failure. He failed to beat Liz Truss, he failed to cut waiting lists, he failed to stop the boats and now he has failed to grow the economy.
“Thirteen years of economic failure under the Conservatives have left working people worse off with higher bills, higher mortgages and higher prices in the shops.
“It’s time for change. The Labour Party, led by Keir Starmer, has a long-term plan to grow the economy and make working people better off.”
Hunt: Medium-term outlook is far more optimistic than GDP numbers suggest
Chancellor Jeremy Hunt has claimed that the medium-term outlook for the UK economy is “far more optimistic” than today’s GDP data shows.
Hunt adds:
“We’ve seen inflation fall again this week, and the OBR (Office for Budget Responsibility) expects the measures in the autumn statement, including the largest business tax cut in modern British history and tax cuts for 29 million working people, will deliver the largest boost to potential growth on record.”
ONS: Economy has changed little over last year
ONS Director of Economic Statistics Darren Morgan says that Britain’s TV and film industry had a worse time in July-September than first estimated.
Explaining why GDP has been revised down this morning, Morgan says:
“The latest data from both our regular monthly business survey and VAT returns show the economy performed slightly less well in the last two quarters than our initial estimates. The broader picture, though, remains one of an economy that has been little changed over the last year.
“The latest VAT data, which takes a little time to receive and process means we now estimate the economy showed no growth in the second quarter, with weaker performances from smaller businesses, particularly those in both hospitality and IT than first shown.
“We also now estimate the economy contracted slightly in the third quarter, when we previously reported no growth, with later returns from our business survey showing film production, engineering & design and telecommunications all performing a little worse than we initially thought.”
We have been covering the struggles in the UK’s film production sector in recent months, which has forced some workers to seek other jobs:
The ONS has also reported that UK retail sales volumes rose by 1.3% in November 2023.
That follows no growth in October (revised from a fall of 0.3%).
Darren Morgan, director of economic statistics at the ONS, said:
“Retail sales grew strongly in November as heavy Black Friday discounting encouraged shoppers to spend. However, with the three-month trend continuing to fall and overall sales still below pre-pandemic levels, it’s still a challenging time for retailers.
“In the latest month, household goods retailers, clothing shops and department stores all reported robust sales, with computer stores, sports equipment, toy shops and cosmetics stores particularly benefitting from the impact of their Black Friday promotions.
“Supermarket sales ticked up a little, but it was specialist food and drink stores that had a really strong November due to customers stocking up early for Christmas and spending more than we have traditionally seen at this time of year.”
UK economy shank in Q3, raising recession risk
NEWSFLASH: The UK economy is on the brink of recession, after new data shows GDP shrank slightly in the third quarter of the year.
The Office for National Statistics has revised down its estimate for the economy in July-September.
It now estimates that UK GDP fell by 0.1% in the third quarter of 2023, down from the previous estimate of no growth.
The downgrade is because the UK services sector is now estimated to have fallen by 0.2% in the third quarter of 2023, revised down from a first estimate fall of 0.1%.
The ONS says:
In output terms, there was a 0.2% fall in the services sector in the latest quarter, which offset a 0.4% increase in construction output and a 0.1% increase in the production sector.
In another blow, GDP is now estimated to have shown no growth in Q2, revised down from the previous estimate of +0.2% growth.
GDP is estimated to have fallen by 0.1% in Quarter 3 (July to Sept) 2023, revised down from the previous estimate of no growth.
Meanwhile GDP is now estimated to have shown no growth in Q2, revised down from the previous estimate of +0.2% growth.
➡️ https://t.co/KjTIdncntf pic.twitter.com/xb7H0dRZKD
— Office for National Statistics (ONS) (@ONS) December 22, 2023
A technical recession is two quarters of contraction in a row, so if GDP falls in October-December, the UK will be in recession.
Julia Kollewe
The latest healthcheck on the UK property sector shows that sales and demand across the UK were almost a fifth higher in the final weeks of 2023 than a year earlier as sentiment improved.
My colleague Julia Kollewe reports:
The property website Zoopla said new sales agreed were 17% higher in December than this time last year, when higher mortgage rates hit market activity. Demand is up 19%, measured by would-be buyers contacting agents to inquire about and arrange viewings for a specific property listed on Zoopla. An increase in the number of homes for sale is increasing choice and supporting sales, it said.
Zoopla recorded an annual house price fall of 1.1% across the country this month, with a steeper drop in London, of 1.5%, to an average price of £536,800. In the capital, prices were up 0.3% in the City while Croydon, Bromley and Woking posted the biggest price declines, of 3.5%, 3.4% and 2.8% respectively.
More here.
UK auto sector posts best November car output since 2020
In a boost to the UK economy, Britain’s car industry has posted its best November output since 2020.
UK car production grew by 14.8% in November with 91,923 cars leaving factory gates, the Society of Motor Manufacturers and Traders reports.
Production was lifted by easing supply chain problems, and increased demand from abroad.
The SMMT says:
Production for both the home and overseas markets increased, up 13.4% and 15.2% respectively. 22,919 cars stayed in the UK though, as always, exports drove volumes.
Export growth was driven mainly by the EU, China and Turkey, although Europe received by far the bulk (60.8%) of all shipments, reinforcing the need for tariff-free electrified vehicle trade across the Channel.
Overnight, UK chancellor Jeremy Hunt applied a little pressure to the Bank of England to consider cutting interest rates in 2024.
Speaking to the Financial Times yesterday, Hunt suggested that the BoE could start to reduce borrowing costs next year, saying:
“There’s a reasonable chance that if we stick to the course we’re on, we’re able to bring down inflation, the Bank of England might decide they can start to reduce interest rates.
That probably is the moment when people will begin to have more confidence about their own personal prospects and the prospects of their family.”
Hunt also hinted at tax cuts next year, telling Bloomberg that falling debt interest costs may give him the necessary headroom.
2024, of course, will almost certainly be an election year (unless Rishi Sunak hangs on until January 2025), so the government may hope that falling interest rates and cuts to the tax burden would revive their approval ratings.
Introduction: UK GDP and retail sales in focus
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s the final day of stock market trading before Christmas, but there’s still time for an important update on the health of the UK economy.
At 7am, the Office of National Statistics (ONS) will publish its latest quarterly national accounts for the UK, giving detail into how the economy fared in July-September (Q3 2023).
The first estimate of third-quarter GDP was released last month, showing the economy stagnated. Today’s report will probably confirm that, City economists estimate. But it’s not impossible that the headline figure will be revised up, or down – and a downgrade would mean the economy shrinking, putting Britain on the brink of recession.
Dan Hanson, senior UK economist at Bloomberg Economics, warned earlier this week that there is a chance of a downgrade.
“The ONS is likely to confirm that GDP stagnated in the third quarter, but we do think there is some risk output is revised lower.
The first estimate showed GDP fell, just not by enough to tip the rounding, and since then the retail sales data has been revised down. The statistics wouldn’t need to find much more weakness for GDP to register a 0.1% fall.”
The ONS will also release the latest retail sales figures at 7am, with economists predicting a 1.3% fall, year-on-year, in November, as households cut back amid the cost of living squeeze.
Also coming up today
Britain’s transport network will be doing its best to get passengers home for Christmas, after yesterday’s turmoil.
The strike which suddenly halted Eurostar trains running between London and Paris was ended last night, as unions reached an agreement with management.
Eurostar is promising to run six extra trains between Paris and London into the weekend – an extra two trains each on Friday, Saturday and Sunday.
The Eurotunnel staff strike is now over. We’ll run a normal timetable to/from London on 22/12/23, as well as additional trains. Please visit https://t.co/WEPlfRmGZH. We’re sorry that we were unable to provide our usual service today due to circumstances outside of our control.
— Eurostar (@Eurostar) December 21, 2023
We can confirm that the additional trains to/from London for 22/12, 23/12 and 24/12 are now available to exchange to. We understand that today was very challenging and appreciate your understanding.
— Eurostar (@Eurostar) December 21, 2023
Passengers hoping to travel from London Euston could continue to face disruption after services were cancelled on Thursday following damage to overhead electric wires.
The agenda
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7am GMT: GDP quarterly national accounts, UK: July to September 2023
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7am GMT: Retail sales across Great Britain for November
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1.30pm GMT: Canadian GDP for October
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1.30pm GMT: US PCE index of producer price inflation for November
