Closing summary: The prelude to recession
Is the UK economy in recession? It depends who you ask.
UK GDP contracted by 0.2% in the second quarter. A second consecutive quarter would mean the UK is in a technical recession.
The data on Friday were only “a prelude to recession”, according to economists led by Holger Schmieding at Berenberg, an investment bank.
The recession is likely to last until the first quarter next year, with a peak-to-trough decline in real GDP of 2.3%. The annual growth rate for 2022 would then be 3.0%– which looks high but is driven by the 2.8 percentage point statistical overhang from 2021 with its post-COVID-19 bounce-back. In 2023, we expect GDP to decline by 1.2%, before growth recovers to 1.7% in 2024.
In fact, it is a bit of a puzzle that the drop has not been more pronounced. June’s 0.6% month-on-month GDP decline was comparatively modest versus drops of 1.7% and 2.2% in the jubilee celebrations of June 2012 and 2002, according to Oxford Economics, a consultancy.
Andrew Goodwin, Oxford Economics’ chief UK economist, said this might be explained by “structural changes to the economy, including the rise of online shopping” which allow people to keep on working.
Other options for why it wasn’t as bad a contraction as expected might include stronger-than-thought underlying economic momentum, or that it will be revised down at the next estimate, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
June’s 0.6% m/m drop in UK GDP is puzzlingly small, given that it fell by 2.2% in June 2002 & 1.7% in June 2012. There are only 3 possible explanations:
— Samuel Tombs (@samueltombs) August 12, 2022
1. Fall will be revised larger in time
2. Econ is more adaptable now
3. Jubilee hit still big but econ has strong momentum
National Institute of Economic and Social Research (Niesr) runs a “nowcast” for the UK economy using more timely data. For the third quarter (i.e., now), it predicts a contraction of 0.1%, with growth “likely to slow further as inflation drags on consumer demand”.
Stephen Millard, deputy director for macroeconomic modelling and forecasting, at Niesr.
It now looks like the UK economy entered a recession in the second quarter of this year as GDP fell by 0.1%, and we expect output to continue falling over the next three quarters.
On the expenditure side, the fall in Q2 was driven by a 0.2% fall in consumption; on the output side, by a 0.4% fall in services, particularly, health and social work. GDP fell by 0.6% in June after a revised rise of 0.4% in May as the platinum jubilee celebrations affected the monthly profiles.
That’s all from us this week, but you can continue to read our live coverage from around the world:
In the UK, Boris Johnson admits government’s cost of living support is not enough
In our coverage of Russia’s invasion of Ukraine, President Volodymyr Zelenskiy tells officials to stop leaking military tactics; UN sounds nuclear plant warning
And in the US, the FBI search of Donald Trump’s property overshadows Congress as it convenes to pass climate bill
Thank you as ever for following our live coverage of business, economics and financial markets. Do join us bright and early on Monday morning for more of the same. JJ
BT has responded to the union announcement of further strike action by thousands of workers.
The company said that it will not return to the negotiating table having made a pay award in April - amounting to 5% on average and 8% for the lowest paid workers - which it says is the highest award in 20 years.
A spokesman for BT said:
We have made the best pay award we could and we are in constant discussions with the CWU to find a way forward from here.
We will work to reduce the impact of any industrial action by, for example, postponing any non-essential planned engineering or software updates - similar to what we did at the height of the pandemic and as we do over holidays like Christmas.
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