The UK has probably just entered a recession. In the third quarter, its economy contracted by 0.2%, according to data from the Office for National Statistics published on Friday (November 11th). The general view of economists is that this is just the beginning: the next few quarters will almost certainly be negative for the economy, the only uncertainty being how long the recession will last (which is officially defined as two quarters consecutive declines in gross domestic product). The Bank of England estimates that it could be spread over two years. S&P Global Market Intelligence or HSBC are a little less pessimistic and are betting on a recession that will end at the end of the first half of 2023.
In any case, the United Kingdom is entering a difficult period, in particular for households. In one year, electricity and gas bills have doubled. Over the same period, interest rates on mortgages quadrupled to 6%. Inflation was in September at 10.1% (over one year), severely reducing purchasing power.
As a result, the inevitable is happening: household spending fell 0.5% in the third quarter. The drop is particularly strong in clothing, furniture and household equipment.
Exposed to gas
Leisure activities are also being severely curbed. The “consumer services” fell 1.6% in August and 1.7% in September. In total, they are 10% below their pre-pandemic level.
Admittedly, the fall was artificially accentuated by the additional public holiday which was granted on the occasion of the Queen’s funeral. According to the Statistics Office, monthly GDP was down 0.6% in September alone, at least half of which was due to this exceptional calendar. In addition, all of Europe is experiencing a sharp economic slowdown, due to soaring gas prices this summer. But HSBC economists point out that the UK is a bit more affected than other countries. In the third quarter, its GDP fell 0.4% below its pre-pandemic level. In comparison, that of the euro zone remains 2% above, and, in the United States, 4.2%.
The explanation comes in particular from the United Kingdom’s exposure to gas. If the country hardly bought any from the Russians, it suffered like the others in Europe from the price shock. However, it produces a third of its electricity with gas, and the vast majority of households use it for their heating. The consequences are comparatively a little stronger.
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