Will the UK avoid recession? Latest GDP data provokes reaction from finance industry

by | Oct 12, 2023

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Data released this morning from the ONS  has revealed that the UK managed to deliver 0.2% growth in GDP for the month of August, following a less favourable picture reported in their July data. But does this mean we can dial down concerns about the health of the UK economy? What about the prospect for recession? 

Finance experts have been sharing their views with on today’s GDP data – and what it means for the world of investment as well as the UK’s economic prospects going forward. 

Commenting on the latest UK GDP figures Hetal Mehta, head of economic research at St. James’s Place, said: “Today’s GDP data were broadly in line with what we and others were expecting – some bounce back was likely given the perfect storm of wet weather and strikes pulling GDP down in July. It is clear, however, that the economy remains weak. Monthly GDP has trundled sideways since the beginning of 2022 and the full effect of the Bank of England’s rate increases is yet to feed through. Credit conditions have been tightening and some softening in the UK labour market is evident – these will most likely keep the UK economy on a weak footing in the months ahead.”

 
 

Danni Hewson, head of financial analysis at AJ Bell, comments on the latest UK GDP figures:

“On the one hand 0.2% could be considered the Goldilocks of GDP growth. Not too hot to suggest the Bank of England has more work to do to slow down the economy, not too cold to suggest its measures have completely stalled the engine. 

And the fact that August stormed back from July’s damp and dismal decline is testament to the resilience of the UK economy. 

 

The service sector, particularly education, engineers and architectural and legal firms, delivered the biggest growth drivers.

But August is notable for its normalcy. The weather was pretty mediocre, the school holidays meant the impact of industrial action was relatively limited, and parents that had money to spend were prepared to spend it to keep their kids occupied.

That said, the consumer facing part of the service sector still struggled. Cash strapped households had to make choices about which activities they would splash out on whilst keeping a weather eye on budgets.

 

The previous month’s washout pushed people to spend on indoor activities like the cinema, so even a grey day provided families with an opportunity to do stuff for free on playing fields and in parks. 

The length of the cost-of-living crisis has decimated savings and forced people to think carefully about every penny they spend, and that’s crystal clear when you compare where the sector was before the pandemic and where it is now. 

Manufacturing and construction remained subdued even as some cost pressures begin to ebb away. For the latter sector it seems the weather was still causing problems, with delays to planned work as whatever summer sun glinted through the gloom failed to do much to boost temperatures.

 

But despite August’s growth, July’s contraction was worse than had been thought and the disruption from rail strikes in September is already making economists concerned about the next set of figures.

There’s been a lot of talk of recession and with growth so slim it’s beginning to feel almost inevitable. The full extent of increased borrowing costs has yet to be felt and as temperatures cool and thermostats are eyed warily there’s a real sense that economic resilience is fraying.”

Commenting on today’s GDP data rebound highlighting potential UK economic growth and the opportunities for smaller SMEs, John Glencross, CEO and Co-Founder of Calculus, said: 

 

“Today’s GDP data rebound signals a positive trajectory and inspires confidence in the UK economy for investors and SMEs alike. Though a challenging economic environment persists, we are encouraged by the recent and significant revision of historical growth which changes the picture of the immediate post-pandemic recovery, notably compared to our European neighbours. Indeed, there are signs of long-term and credible support for UK business, and it will be interesting to see how this develops in the final quarter of 2023.”

As we see an upturn in the economy, the smaller end of the UK market continues to require attention to spur significant growth in Britain. The Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) continue to support this section of the market – igniting growth and championing innovative UK companies. Calculus launched the first approved EIS fund 23 years ago. We are steadfast in our support of UK SMEs and with our invaluable experience of scaling companies in fast growing sectors, we can continue to provide innovative and tax-efficient venture capital investment opportunities for investors.”

Commenting on this morning’s UK GDP data Melanie Baker, senior economist at Royal London Asset Management, said:

 

“Despite past ONS revisions improving the Covid-era backstory for GDP, since early 2022 it still looks like the UK economy has barely grown.

The past three months have again been bumpy for UK GDP, and the economy looks on track for a fall in GDP in the third quarter. The extra bank holiday hit output in May, June bounced back stronger than expected, then July saw a bigger than expected fall. Taking all these months together, GDP hasn’t grown since April. If, say, the economy grew another 0.2% month-on-month in September, that would leave Q3 tracking a 0.1% quarter-on-quarter fall in GDP. 

For now, the picture of the economy coming from the data is lacklustre. Given how much monetary policy tightening we’ve had it is still somewhat surprising that the UK economy has managed to avoid recession so far. I am not convinced it will continue to do so. PMI business surveys are looking consistent with falls in private sector output and the labour market has been showing more signs of weakness.

We’ve still got a few data points to go before the Bank of England’s next meeting on 2 November and the CPI release next week will probably be the most important of those. I expect headline and core inflation to move lower in coming months. Soft activity data and labour market data, however, would help give the Bank of England the confidence to view inflation as heading sustainably lower as we move through the next quarters.” 

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