Today’s announcement from the Office for National Statistics (ONS) that the UK’s September and Q3 GDP has shown a fall of 0.2%, will probably not come as a surprise to many.
Given that the Bank of England recently shared their view that the UK was set to experience eight consecutive quarters of negative growth, it now seems clear that this phase is underway. A second consecutive quarter would meet the technical definition of a recession. But are we there already? What do investment and finance experts think of today’s news? Here we share some of their opinions:
Derrick Dunne, CEO of YOU Asset Management (YOU), commented: “UK GDP fell by 0.2% during the third quarter – and 0.6% in September. On a monthly basis, the information and communication sector was the hardest hit, while services output dropped by 0.8% and played the biggest role in the overall fall.
“These contractions were wholly expected and, sadly, there’ll likely be more to come as we head towards the end of the year. A toxic cocktail of inflation, rate hikes, quantitative tightening and Government instability have created one of the toughest climates in decades for anyone looking to build their wealth.
“But all is not lost for those looking to save for the long-term. As ever, the key to success is keeping long-term plans front of mind – and getting the right advice to ensure they’re continuing to meet your goals.”
James Lynch, Fixed Income investment manager at Aegon Asset Management said: “This morning’s UK GDP release confirms that the UK in Q3 2022 has had a negative quarter, which means the UK economy is in contraction. Since Q2 2021, the GDP growth has been falling but this is the first quarter it has moved to negative since then. In the details, there were good backward revisions: the Q2 number was -0.2%, better than -0.5% as predicted. However, September was worse at MoM rate of -0.6% compared to -0.4% in the estimated survey data.
“Of course, a lot can change going forward, and given what the UK has been through in the past few years, who is to say 2023 will be predictable. It does seem likely this weak economic momentum will continue and therefore the start of a long recession has, most likely, just been confirmed.”
Daniele Antonucci, Chief Economist & Macro Strategist, Quintet Private Bank, on the UK GDP Estimate said: “The latest GDP figures suggest that the UK economy is contracting, with a fall of 0.2% in the third quarter. While the convention is for two consecutive quarters of negative growth before acknowledging that the economy is in recession, evidence is mounting that recession has already arrived.
“While policy tightening is probably inevitable to restore price and financial stability, high inflation and interest rate hikes are squeezing incomes, and fiscal tightening will probably add to the downward pressure.
“We expect inflation to peak at around 11% at the turn of the year but to stay quite elevated for some time. This alone is having a significant impact on the cost of living and is depressing consumer and business confidence.
“Despite contracting economic activity, we think the Bank of England will likely continue to hike rates at least into early next year.
“After the largest rate increase since 1989 earlier this month, which took the policy rate to 3%, its highest level since the global financial crisis in 2008, we expect a further hike next month.
“That said, while the Bank of England continues to forecast an environment of weak growth and high inflation, its inflation forecast has been revised downwards. The Bank’s latest commentary seems somewhat dovish, which is one reason why we expect a slower pace of hiking going forward. We forecast a 50 bps rate rise to 3.5% in December.
“After all, the recessionary impulse is intensifying in the UK. Poor economic activity is being corroborated by several indicators including the all-important manufacturing purchasing managers’ index, now well below the 50-point threshold separating expansions from contractions, which indicates that the UK manufacturing sector is already in contraction.
“Investors will pay close attention to the full budget on 17 November. Following the gilt market stabilisation after the Bank’s intervention and the scrapping of the mini budget, the Office for Budget Responsibility has made a downward revision to its estimate of the fiscal hole to £30 billion. While this is down from a previously estimated £40 billion or so, it still points to significant belt-tightening.”
Andrew Aldridge, Partner at Deepbridge Capital, said: “Today’s downbeat results today of -0.2% for Q3 is certainly not good news for financial advisers and investors, though the Bank of England gave due warning of economic contractions earlier this month. The figures this morning also mean the first step towards a recession that could become official in the new year.
Economic and fiscal policymakers are scrambling to restore confidence in the economy and public markets, and this only underlines the potential in private markets and venture capital as an alternative investment in tough times. This investment avenue can offer steady long-term growth opportunities, with unparalleled tax reliefs available via the Enterprise Investment Scheme.”
Rupert Thompson, Chief Economist at Kingswood, said: “UK GDP shrank by a larger than expected 0.6% in September, partly due to the extra bank holiday. Activity also contracted by 0.2% over the third quarter as a whole, albeit by less than feared as GDP was revised up in July and August. According to the Bank of England’s forecasts, this decline, which will mark the start of a recession, will last until at least the end of next year. Even so, this contraction should not prevent the Bank from continuing to raise interest rates as inflation is forecasted still to be above 5% by end-2023.”
George Lagarias, Chief Economist at Mazars says: “UK economic output shrank for the third month out of the last four. Manufacturing is weakening and consumer real incomes are suppressed by high inflation. The downward trend may well continue. While some headline inflation numbers may begin to look better from here on, we expect prices to remain elevated for some time, adding more pressures on demand. Should next week’s budget prove indeed ‘difficult’ for taxpayers, as expected, consumption will probably be further suppressed, and the Bank of England should begin to ponder the impact of a demand shock on the economy.”
Douglas Grant, Group CEO of Manx Financial Group PLC, said: “Today’s GDP data indicates a contraction in Q3 2022 after a year of sluggish growth and a significant downgrade from the 1% growth forecast in the summer. This year has bought a stormy and turbulent environment for SMEs and this announcement does little to shed a light on when conditions will improve. On top of unprecedented market volatility seen in this quarter, the disappointing GDP figure will compound the worst effects of rising inflation and the energy crisis businesses will face this coming winter. We believe that demand for liquidity support in the UK is going to soar to levels seen at the onset of Covid lockdowns as firms desperately seek vital capital.
“There is plenty to be done at the governmental level to help SMEs, the backbone of the UK economy, weather these stormy conditions. Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last two years were unable to access it. Indeed, more than a quarter have had to stop or pause an area of their business because of a lack of finance. SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy growth opportunities at a time when it is needed the most. The amount of growth that is being sacrificed is significant and will require new solutions which are designed to address this funding gap.
“For some time, we have been calling for a sector focused permanent government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs. As the government looks for other ways to power the economy’s resurgence, the importance of a permanent scheme should not be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. We very much hope this is something that becomes a reality.”
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown: “UK recession is looking more likely as the economy shrank 0.2% in the three months to September. This essentially means we’re more firmly on track to be in a recession by the end of the year. The most notable downturns came from a slowing in the services sector, driven by a fall in consumer facing services. Production also fell sharply. The stark takeaway is that real household spending dropped 0.5%. This points to the tangible consequences of the cost-of-living crisis and is a trend likely to get worse before it gets better. It also has serious ramifications for companies relying on consumers spending on a discretionary basis.
“At the same time, we’re living in a topsy turvy land where bad economic news is likely to be taken well by markets. If economies show signs of slowing down, it means inflation has a better chance of petering out, which in turn means policy makers won’t be forced to keep interest rate hikes as aggressive, or keep tightening programmes going for as long. With that said, while the UK’s GDP did shrink, it was by less than expected. So, the jury’s likely to be out on whether this has been a deep enough dip to allay inflation fears just yet.”
