The UK financial system contracted by greater than beforehand estimated within the third quarter and lagged additional behind different superior economies, as households struggled with excessive inflation.
Information revealed by the Workplace for Nationwide Statistics on Thursday additionally prompt that buyers are usually not dipping into their financial savings as a lot as forecast, suggesting the UK’s recession could possibly be deeper than anticipated.
UK output fell 0.3 per cent between the second and third quarter, a bigger contraction than preliminary estimates of 0.2 per cent, the info confirmed.
Within the third quarter, the financial system was 0.8 per cent smaller than within the remaining quarter of 2019, earlier than the Covid pandemic.
All different G7 economies, against this, have regained floor misplaced through the pandemic. Within the three months to September, the US financial system was 4.3 per cent bigger than within the fourth quarter of 2019, whereas eurozone output was up 2.2 per cent.
Gabriella Dickens, UK economist on the consultancy Pantheon Macroeconomics, warned that the UK financial system would proceed to underperform different G7 international locations.
“We anticipate Britain to undergo the deepest recession amongst main superior economies in 2023, as a result of severity of the headwinds from each financial and financial coverage,” she mentioned.
Final month, the OECD, a membership of principally wealthy nations, additionally forecast the UK would be the worst performing financial system within the G20 bar Russia over the subsequent two years.
The ONS additionally revealed that the non-pension saving ratio — the common share of revenue that’s saved — elevated to 1.8 per cent within the third quarter from 1.3 per cent within the earlier one. The figures indicated that persons are turning into extra cautious within the face of rising financial dangers.
The Workplace for Finances Accountability, the UK fiscal watchdog, forecast final month that the saving ratio would fall to zero within the third quarter as households drew on their financial savings to cushion the affect of upper costs.
Shoppers persevering with to avoid wasting, somewhat than spend, might result in a deeper recession than the two.1 per cent peak-to-trough fall predicted by the OBR.
The ONS information confirmed that households’ actual disposable revenue — the quantity out there to spend after taking inflation into consideration — fell 0.5 per cent between the second and third quarter.
It was the fourth consecutive fall as wages did not sustain with inflation. With actual revenue dropping or stagnating for a lot of the previous three years, actual family revenue was 2.9 per cent beneath the third quarter of 2019 — the biggest decline over that point interval since data started.
After accounting for inflation, family spending fell by 1.1 per cent within the third quarter, the primary drop because the begin of final yr when the nation was in lockdown.
Many economists consider that the autumn within the third quarter marks the beginning of a chronic recession. Thomas Pugh, economist at audit, tax and consulting agency RSM UK, mentioned the financial system is likely to be no bigger in 2025 than it was in 2019, earlier than the pandemic.
“The upshot is that the UK is sort of definitely already in a year-long recession that will show to be deeper than that skilled within the early Nineties,” mentioned Pugh.
