David Davis says two key factors may risk ‘longer recession’
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The latest official statistics show the British economy shrank by more than initially thought during the three months to October. The UK has been clinging to the fifth spot in the world rankings of economic might for some time – behind Germany and ahead of India and France. However, with exceptionally poor results for this year and an exceptionally poor outlook for the next, the UK may well slip down the pecking order to its lowest position in 30 years.
The Office for National Statistics (ONS) downwardly revised the UK’s economic output between July and September on Thursday.
Gross domestic product (GDP) – the value of all goods and services produced in the country during that time – is now thought to have fallen by 0.3 percent during the third quarter, a more pronounced contraction than the 0.2 percent fall initially estimated.
The statistical agency was compelled to make similarly sobering revisions during the first half of the year, showing the UK economy grew by 0.6 and 0.1 percent during the first and second quarters of the year respectively, down from 0.7 and 0.2 percent.
With GDP growth widely expected to be in negative territory between October and December – a quarter marred by record-high energy prices, inflation and days lost to strike action – Thursday’s figures confirm fears that the UK will almost certainly enter the New Year in a recession.
According to the Organisation for Economic Co-operation and Development (OECD), GDP growth among its highly developed member countries has been weak throughout the year, increasing by just 0.4 percent during the third quarter.
The UK is not alone in having suffered economically throughout 2022. Exceptional inflation rates have been recorded by countries the world over in the wake of Russia’s invasion of Ukraine and the ensuing havoc in energy markets.
However, although the UK has retained its spot as the world’s fifth-largest economy throughout the pandemic and energy crisis, this may well no longer be the case by the end of 2023.
The US currently boasts the most powerful economy of all, working out to £17.2trillion in 2022, followed by China (£12.1trillion), Japan (£4.2trillion) and Germany (£3.2trillion), according to the World Bank.
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Last year, UK GDP at current prices was estimated at £2.2trillion – only marginally ahead of India (£2.19trillion) and France (£2.16trillion).
While the British economy contracted in third quarter of the year, India’s expanded by 0.8 percent while France’s grew by 0.2 percent, according to the OECD, closing the gap between the world’s fifth, sixth and seventh-biggest economies.
In fact, the UK’s performance between July and September was worse than any other country in the G7 – undercutting Japan’s 0.2 percent fall.
The combined downward revisions for the whole of 2022 mean that UK GDP is now 0.8 percent below pre-pandemic levels, double the initial 0.4 percent estimate. The UK is the only country in the G7 with an economy smaller than it was at the start of 2020.
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The bulk of forecasters at home and abroad predict the UK economy will shrink in 2023.
The Office for Budget Responsibility – the independent body providing financial guidance to the Government – estimates the fall at 1.4 percent. The British Chambers of Commerce expect a five-quarter recession, begining during the July to September quarter of this year, resulting in 1.3 percent negative growth next year.
On the other hand, according to Goldman Sachs’ latest outlook reports, India’s economic growth in 2023 is predicted to come in at 5.9 percent – albeit down from 6.9 percent in 2022. The European Commission believe the French economy will expand by 0.4 percent next year.
As a result, the UK may find itself leapfrogged by both countries by the end of next year, falling to a 30-year low of seventh in terms of global economic might.
Darren Morgan, director of economic statistics at the ONS, said: “Our revised figures show the economy performed slightly less well over the last year than we previously estimated, with manufacturing and electricity generation notably weaker.
“Household incomes continued to fall in real terms, albeit at a slower rate than in the previous two quarters, while – taking account of inflation – household spending fell for the first time since the final Covid-19 lockdown in the spring of 2021.”
This comes as public sector borrowing was found to have jumped to its highest amount for any November on record on Wednesday – as the cost of energy subsidies hits Government coffers hard.
Borrowing reached £22billion last month, almost double the £13billion forecast by economists according to Reuters.
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