The British economy is poised to enter a recession as data shows that it shrank by 0.3% from July to August. The decline was caused by weak manufacturing and maintenance activity in North Sea oil and gas facilities. The study also revealed how consumers were being affected by an increase in prices. The shrinking of the UK economy poses further challenges to the new Prime Minister, Liz Truss.
According to the Office for National Statistics, manufacturing declined by 1.6%. The mining and quarrying sector which included oil and gas, slumped by 8.2%. Additionally, the cost of the living problem appeared to be affecting hotels, restaurants, and the leisure industry. The services sector shrank by 0.1%, which was a result of cuts to health service spending.
Households are being squeezed by rising inflation, which is causing the Bank of England to promptly boost interest rates. According to economist Samuel Tombs, a third of all households, no longer have meaningful savings.
A one-time public holiday to commemorate Queen Elizabeth’s funeral is anticipated to have a negative impact on GDP in September.
The shrink in UK’s economy follows the news of its falling unemployment rate. As per the official data, the unemployment rate in the UK fell to 3.5%, the lowest since 1974. The fall is attributed to the exodus of laborers from the UK.
Will the UK’s economy climb out of the slump?
According to the International Monetary Fund (IMF), British GDP will grow in 2023, but their projections put growth at 0.3%. Nonetheless, the IMF’s forecast for the British economy was higher than those for the economies of Germany and Italy. Both Germany and Italy are set to face shrinking economies as gas shortages from Russia take effect.
Though Truss and Finance Minister Kwasi Kwarteng pledged to hasten economic growth, their plan for unfunded tax cuts caused havoc on the financial markets.
The rise in market interest rates, which has severely strained pension funds, is another issue the central bank is trying to address. It said that it will stop its emergency bond-buying program on Friday.