Britain’s economy shrank in the three months through October, the Office for National Statistics (ONS) confirmed on Monday, reflecting concerns over a lengthy recession.
Data showed that gross domestic product (GDP) declined by 0.3% in the period when compared with the three months through July.
The decline came even as estimates showed that GDP increased by 0.5% in the month of October after a 0.6% drop in September.
Despite the rebound in October, there is still a good chance that the British economy will shrink for a second consecutive quarter in the last three months of this year, chief economic adviser to the EY Item Club Martin Beck was cited as saying by the Associated Press. Two consecutive quarters of declining output is the technical definition of a recession.
“The near-term outlook remains gloomy, as consumers continue to struggle under the weight of high inflation and with much of the impact of this year’s interest rate rises still to be realized,” Beck reportedly said.
The ONS statistics showed that output by productive industries, which range from manufacturing to mining and energy production, dipped 1.7% in the three months through October. Service industries, which account for about four-fifths of the British economy, tumbled 0.1% during that period.
Meanwhile, consumer price inflation accelerated to a 41-year high of 11.1% in October, fueled by skyrocketing costs for food and energy.
The Bank of England said last month the economy was probably already in a recession that could last until the end of 2023. The regulator has approved eight consecutive interest rate increases as it struggles to rein in spiraling inflation. That pushed the bank’s key rate to 3% from 0.1% a year ago.
“[I] doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G7 economies,” Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics told the Guardian, commenting on the ONS data.
The British economy is on course to shrink 0.4% next year as inflation remains high and companies put investment on hold, the Confederation of Business Industry (CBI) warned on Monday.
According to the report, the UK has already fallen into a “short and shallow” recession that will leave business investment 9% below 2019 levels and productivity 2% below its pre-pandemic trend at the end of 2024. Persistent weak productivity and business investment “doesn’t bode well for the country’s potential to grow,” it said.
Inflation in the country, which hit a 41-year high of 11.1% in October, was forecast to average 6.7% next year and 2.9% in 2024.
The CBI expects the UK to suffer the second worst recession among major economies, after Germany.
“Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment,” CBI Director-General Tony Danker said. “Firms see potential growth opportunities but a lack of ‘reasons to believe’ in the face of headwinds are causing them to pause investing in 2023,” he explained.
The CBI called on the government to make Britain's post-Brexit work visa system more flexible, end what it sees as an effective ban on constructing onshore wind turbines, and give greater tax incentives for investment.
According to the lobby group, the government’s plan needs to be built around boosting productivity and increasing labor supply as the UK is the only major advanced economy with fewer people working than before the pandemic.
“We will see a lost decade of growth if action isn't taken. GDP is a simple multiplier of two factors: people and their productivity. But we don't have people we need, nor the productivity,” Danker stressed.