THE UK economy shrank in August, strengthening predictions that it will fall into a recession.
This was a surprise 0.3% drop, after analysts predicted the economy would stall in August but not shrink, as costs mount for businesses and households. The drop comes as prices are rising at their fastest rate for 40 years, eating into people’s budgets, and outpacing growth in pay.
Reacting to the latest figures, David Bharier, Head of Research at the British Chamber of Commerce, said:
“The 0.3% fall in monthly GDP for August 2022 is a warning sign that the economy was already stalling before the market turmoil of recent weeks.
“Our research indicates that business confidence is falling at an alarming rate. Volatility in the currency and bond markets following recent Government announcements will have only exacerbated this.
“The six months energy support package will have provided some breathing room for businesses facing eye-watering energy costs.
“To build business confidence, Government must rapidly provide more detail on its fiscal policies and supply side reforms, particularly at a time when businesses face the twin crises of rising interest rates and high inflation.”
Kevin Brown, savings specialist at Scottish Friendly, also commented:
“The latest GDP figures for the UK reflect the complex economic and financial picture the country is facing. The storm clouds have already gathered, and now look ready to burst.
“Falling GDP at this critical juncture adds to an already complicated situation and will further reduce confidence among households already facing stifling cost-of-living pressures.
“The IMF yesterday predicted UK GDP will go on to be stronger than other G7 nations. While this could prevent bigger issues in the jobs market, it looks likelier than ever that inflation will persist for longer. The IMF for its part says it forecasts 9+% inflation for another two years in the UK.
“This is compounded by the fact that the Bank of England is now effectively unwinding monetary tightening before it ever meaningfully got going. Again, while this might resolve some particular market issues, it is little comfort for households facing ongoing eye-watering rising costs.
“So, what can households do with such a complicated outlook? It may seem tough, if not impossible for many, however continuing to build up financial resiliency wherever possible could be the best way to limit the damage of any future shocks further down the tracks.”
