Sunday, 29 January, 2023

Britain stuck on recession path despite growth rebound

Britain stuck on recession path despite growth rebound

LONDON: Britain's economy remains on course for a long-lasting recession on fallout from the highest inflation in decades, analysts said on Monday, even if official data showed growth in October.

Gross domestic product rebounded 0.5 percent in the month, the Office for National Statistics (ONS) said. GDP had dropped 0.6 percent in September, in part owing to businesses closing for the funeral of Queen Elizabeth II, reports AFP.

ONS director of economic statistics, Darren Morgan, said the economy was helped in October especially by car sales which "rebounded after a very poor September, while the health sector also saw a strong month".

Despite the rebound, Britain's finance minister Jeremy Hunt spoke of "a tough road ahead".

"High inflation, exacerbated by (Russian President Vladimir) Putin's illegal war, is slowing growth across the world, with the IMF predicting a third of the world economy will be in recession this year or next," he said in a statement.

The UK government and Bank of England have each said they believe Britain is already in a recession that the BoE expects to last all next year.

The main reason for the bleak outlook is fallout from British inflation, which at above 11 percent is the country's highest level in more than 40 years.

Britons are seeing their wages squeezed, triggering mass strike action by public and private sector workers across the UK.

Energy bills and food prices have rocketed this year on supply constraints caused by Russia's invasion of Ukraine and the reopening of economies from pandemic lockdowns.

Britain's economy has further been hit by recent political turmoil and surging interest rates to try and cool inflation.

The Bank of England is on Thursday expected to raise its main interest rate for a ninth meeting in a row.

"The surprisingly strong rise (in October GDP) could tilt the Bank of England towards another bumper 75 basis-points interest rate hike... depending on the labour market and inflation data on Tuesday and Wednesday," noted Ruth Gregory, senior economist at Capital Economics.

Analysts are forecasting the Federal Reserve and European Central Bank to announce smaller rate hikes at their meetings this week compared with recent decisions.

"Monetary policy conditions are set to tighten further, with the Bank of England likely to raise its policy rate by 50 basis points to 3.5 percent this week and then to a peak of 4.0 percent in February 2023," forecast Raj Badiani, principal economist at S&P Global Market Intelligence.

"The return to growth in October was expected and supports our assessment that the anticipated recession is likely to be shallow at first before deepening in early 2023."

He added, however, that data showing "the economy faltering in the three months to October suggests the recession appeared to start in the third quarter of 2022, (and)... is expected to last for four quarters".

The BoE has also said Brexit is hurting the UK economy, with the country's departure from the European Union hitting trade.