NIESR Sees High Risk Of Contraction In UK GDP
December 12 2022 - 4:10AM
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Despite the monthly growth in the gross domestic product during
October, the UK economy is likely to stagnate or shrink in the
final quarter of this year, the National Institute of Economic and
Social Research, or NIESR, said Monday. ONS data showed earlier on
Monday that GDP grew 0.5 percent monthly in October, which was
largely attributable to the weakness in September resulting from
the additional bank holiday for the state funeral of HM Queen
Elizabeth II.
There was a strong pick-up in wholesale and retail trade, and
repair of motor vehicles and motorcycles, which were apparently
strongly affected by the additional bank holiday.
However, GDP shrank 0.3 percent in the quarter to October,
driven by a 1.7 percent decrease in production.
Though the monthly figure signaled a seemingly positive outlook,
forecast suggests that the risk of a contraction in GDP in the last
quarter of this year remains elevated, the think tank said in its
monthly GDP tracker report. "There are still strong downside risks
to GDP in the fourth quarter of this year due to high inflation and
interest rates -which continue to suppress demand -and supply chain
disruptions, as well as work backlogs due to industrial action and
a tight labor market -which continue to weigh on business growth,"
NIESR Associate Economist Paula Carbo said. "We still expect GDP to
remain flat in the fourth quarter of this year."
Recent CIPS/S&P Global purchasing managers surveys showed
decline in activity in both the manufacturing and services sectors
and a modest growth in the construction industry. These signal a
strong risk that anemic business activity will drag on GDP in the
fourth quarter, the NIESR said.
While survey data revealed a rebound in business confidence in
November, after the slump induced by the Truss government and its
'mini-budget', strong pessimism regarding the outlook prevails
among the firms in all three sectors as increasing evidence of the
UK economy in recession emerge. High prices, interest rates and
uncertainty, which continue to hurt household and business
spending, alongside supply-side issues like labor shortages and
strike action, all bode poorly for UK economic performance in the
fourth quarter of this year, the NIESR said.
However, the institute expects growth in the construction sector
alongside the seasonal increase in consumption to result in GDP
remaining flat in the fourth quarter.
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