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UK avoids recession in third quarter

UK avoids recession in third quarter

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It has been a week of mixed economic data in the UK, although the broad trends indicate a slowing of economic activity.  Employment has fallen, inflation has dropped further below the 2% target, retail sales declined in October and economic growth hit its most sluggish pace of expansion in nearly a decade. The good news is that the UK avoided a recession in the third quarter. Figures released by the Office for National Statistics (ONS) on Monday show that the economy grew by 0.3% in the three months to the end of September, rebounding from a contraction of -0.2% in the second quarter. However, the annual growth rate, compared to the same period last year, dropped to just 1% - the slowest annual rate of growth since 2010.

Employment data released on Tuesday also indicated a slowdown. The ONS said that the number of people in work fell by 58,000 in the third quarter, the largest drop since 2015. Part-time jobs fell by 164,000. Given these roles are typically occupied by women, it is thought to be the result of cost cutting by retailers as conditions on the high street deteriorate. With less competition in the labour market, wage growth also slowed, with average weekly wages growing at an annual pace of 3.6%, down from 3.9% in the previous quarter. Analysts had expected no change.

Also this week, the latest inflation figures saw the increase in the cost of living, as measured by the Consumer Prices Index, fall to an annualised rate of just 1.5%, down from 1.7% in September. The drop was due mostly to a lowering of the cap on energy prices by the regulator, Ofgem. The lower inflation figure will help boost household incomes. With wage increases running at 3.6% a year and inflation at 1.5%, households are seeing real incomes rise by 2.1% a year – something of a silver lining. However, if consumers feel richer, it isn’t showing in the latest retail sales data. There was a surprise downturn in October despite heavy discounting in many shops. Sales were down 0.1% on the month, below expectations of a 0.1% increase, with sales falling in all sectors apart from food stores.

The property market is also suffering, according to the latest survey by the Royal Institution for Chartered Surveyors (RICS). The net balance of surveyors saying that house prices had risen over the last three months deteriorated to an index reading of -5 in October from -3 in September. New buyer enquiries improved fractionally, but remained in negative territory at -16, and new instructions fell to -29 from -27. Simon Rubinsohn, chief economist at the RICS, said: "The latest survey feedback continues to suggest that both buyer and seller activity remains in a holding pattern, hampered by political and economic uncertainty”.

Overseas, there was disappointing data out of China on Thursday. Industrial production, a measure of growth in sectors including manufacturing and mining, expanded by 4.7% in October, down from 5.8% the month before. Fixed asset investment and purchases of real estate and infrastructure grew by 5.2%, and retail sales increased by 7.2% in October from the previous year. All were below expectations, signalling a continued slowdown in the world’s second-largest economy.

 

 


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