Image Source: Bloomberg
According to revised numbers, the UK economy shrank more than first thought in the three months leading up to September.
The Office for National Statistics (ONS) said that business investment did worse than first thought. This is why the economy shrank by 0.3% instead of 0.2%, as first thought.
The growth numbers for the first half of 2022 have also been changed.
The UK is expected to go into recession in the last three months of the year because rising prices will hurt growth.
A country is in a recession when its economy shrinks for two consecutive three-month periods, or “quarters.” This is because most companies make less money, pay decreases, and unemployment increases. This means the government needs more tax money to spend on public services.
Director of economic statistics at the ONS, Darren Morgan, said, “Our revised figures show that the economy did a little worse over the last year than we thought before.” However, he said that the manufacturing could have been better.
Taking into account the fact that prices were going up, he said that household incomes kept going down, and household spending went down for the first time since the last Covid-19 lockdown in the spring of 2021.
Gross domestic product (GDP), a measure of the size of the economy, is now thought to be 0.8% smaller than before the pandemic. This is worse than the last estimate, which said GDP was 0.4% smaller after the pandemic than before.
Rising energy and food prices have hurt the economy and pushed inflation to its highest level in 40 years. The rate at which prices rise is called inflation.
It means that both people and businesses are spending and investing less.
The ONS also said that the UK economy grew less than initially thought in the first half of the year. It grew by 0.6% in the first quarter and 0.1% in the second quarter, less than first thought.
The ONS has said in the past that growth in those quarters was 0.7% and 0.2%.
The ONS’s estimates of growth are often changed. This is because it gives the first estimate of GDP about 40 days after the end of the quarter. At the time, only about 60% of the data were available, so the number changed as more information came in.
We already knew that the UK economy shrunk in the third quarter of the year while other economies grew. But now it looks like the UK and the rest of the world is even more different than we thought.
A country whose economy is still 0.8% smaller than before the pandemic is very different from the eurozone, which has grown by 2.2% since the last count, or Canada, which has increased by 3%.
The Paris-based think tank OECD recently said that the UK economy would continue to shrink faster than the rest of the G7 in 2023 while other economies would start to grow again.
There is evidence that some of the poor performance is due to Brexit.
From August to October, the economy shrank by 0.3%, according to data released by the ONS last week.
The government-independent Office for Budget Responsibility (OBR) has said that the UK will go into a recession that will last just over a year.
The OBR predicts that the economy will shrink by 1.4% in 2023 and slowly start to grow again.
So, it thinks that the unemployment rate will go up and house prices will drop sharply as the Bank of England raises interest rates to stop prices from increasing too quickly.
The Bank raised its key rate to 3.5 percent last week, its highest level in 14 years. This means that people with mortgages or loans will have to pay more to pay off their debts.
The UK’s economy is one of many that are slowing down. As a result, the US and the eurozone will likely go into recession next year.
On the other hand, Gabriella Dickens from Pantheon Macroeconomics said she thought the UK would have “the deepest recession of the major advanced economies in 2023.”
Jeremy Hunt said that Vladimir Putin’s invasion of Ukraine was to blame for the economic problems.
“Putin’s invasion of Ukraine has led to high inflation, slowing the growth of economies worldwide. No country is safe, not even Britain, “he said.
But Rachel Reeves, Labour’s shadow chancellor, said in response to the latest ONS numbers that the government was losing control of the economy.
The economy in the UK will worsen before it gets better
After numbers showed that the UK economy shrank from August to October, Chancellor Jeremy Hunt said things would get worse before they got better.
In the last three months, rising prices hurt businesses and families, which made the economy shrink by 0.3%. As a result, a recession will likely happen soon in the UK.
During those three months, the main parts of the UK economy slowed down, like production, construction, and services.
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A recession happens when a country’s economy shrinks for two sets of three months.
Last month, Mr. Hunt said in his Autumn Statement that the UK economy was already in a recession. This will probably be made official when the economic numbers for October through December are released at the beginning of next year.
When a country’s economy is in recession, companies usually make less money, and the number of unemployed people rises. So even people who have finished college or dropped out of high school need help to get their first job.
It also means the government will get less money from health care and education taxes.