The UK has probably just entered a recession. In the third quarter, the economy shrank by 0.2%, according to data from the Office for National Statistics published on Friday (November 11). The general view among economists is that this is just the beginning: the next few quarters will almost certainly be negative for the economy, the only uncertainty being how long the recession will last (which is officially defined as two consecutive quarters of decline in gross domestic product). The Bank of England estimates that it can be spread over two years. S&P Global Market Intelligence or HSBC are slightly less pessimistic and are betting on a recession ending at the end of the first half of 2023.
In any case, the UK is entering a difficult period, especially for households. In one year, the electricity and gas bill has doubled. In the same period, interest rates on mortgage loans have quadrupled to 6 per cent. Inflation in September was 10.1% (over a year), which sharply reduced purchasing power.
As a result, the inevitable is happening: Household spending fell 0.5% in the third quarter. The fall is particularly strong in clothing, furniture and household equipment.
Exposed to gas
Recreational activities are also heavily dampened. That “consumer services” fell 1.6% in August and 1.7% in September. In total, they are 10% below their pre-pandemic level.
Autumn was admittedly artificially accentuated by the extra public holiday given on the occasion of the Queen’s funeral. According to the Statistics Office, monthly GDP fell by 0.6% in September alone, at least half of which was due to this extraordinary calendar. In addition, the whole of Europe is experiencing a severe economic slowdown due to violent gas prices this summer. But HSBC economists point out that Britain is slightly more affected than other countries. In the third quarter, its GDP fell 0.4% below its pre-pandemic level. By comparison, it is still 2% higher in the euro area, and 4.2% in the US.
The explanation comes mainly from Britain’s exposure to gas. If the country bought almost nothing from the Russians, it suffered like the rest of Europe from the price shock. However, it produces a third of its electricity with gas, and the vast majority of households use it for their heating. The consequences are comparatively a little stronger.
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