Recession fears grow as UK economy contracts in Q3

UK gross domestic product contracted by 0.1% in the third quarter, after expanding 0.2% in Q2 and against estimation that the economy was unchanged from the previous three months.

Data suggest that Britain’s economy might be in a recession, as it shrank  during July-September period.

However, there were some more positive signs about the economy, as UK retail sales rose well above expectations in November, increasing by 1.3% from October, after 0.3% drop previous month, driven mainly by discount sales during the Black Friday promotions.

Britain’s Finance minister Hunt said that there’s a reasonable chance to bring down inflation, if the economy stays in the current course and that the BoE might decide to start cutting interest rates, opposing the central bank’s stance that it is still premature to talk about easing monetary policy.

Hunt added that the outlook for the economy was not as bad as Friday’s data suggested, contributing to the view that broader picture for the economy was little changed in past year.

It is still unclear whether the third-quarter contraction in the economy would prove to be the start of a recession, as Britain’s economy was now estimated to be 1.4% bigger than immediately before 2020 pandemic, with some economists pointing to a mild recession, though remain concerned about the performance in the last three months of 2023, as more of the hit from high borrowing cost was still to be shown.

However, slight optimism persists and is based on expectations that inflation will continue to ease in 2024 and give more room for stronger economic growth.