UK economy expected to have contracted in July-September as cost of living crisis and rising interest rates hit growth
Today’s UK Q3 GDP report is expected to “highlight starkly the foolhardiness” of what is likely to come from the Chancellor of the Exchequer next week, says Michael Hewson of CMC Markets.
As he points out, tax rises and spending cuts could be counter-productive:
Today’s numbers are expected to see a sharp contraction of -0.5%, with the outlook for Q4 unlikely to be much better, and yet next week the UK government is set to cut spending and raise taxes to plug what the OBR says is a fiscal black hole of £40bn or so, depending on varying assumptions about interest rates, inflation and growth.
It’s certainly a worrying number, but I’m not sure the measures next week will do anything to close that gap. If anything, they could make things worse at a time when the economy is slowing sharply.
The drop in Q3 GDP reflects continued weakness in household and business confidence, higher inflation, and higher interest rates in the economy, with household consumption contracting in the quarter, business investment slowing, and government spending falling further.
Headwinds to the UK economy will almost inevitably push the economy into recession, with global growth slowing, confidence deteriorating, and persistently high inflation and rising interest rates squeezing disposable incomes further.
