UK economy stagnates in February as strikes and inflation bite

LONDON — The U.Ok. economic system flatlined in February as widespread industrial motion and persistently excessive inflation stymied exercise.

Knowledge on Thursday confirmed a gentle GDP in February, lacking consensus expectations of 0.1% development. Each the companies and manufacturing sectors contracted, partly offset by a file 2.4% enlargement in development. 

This adopted an upwardly revised 0.4% enlargement in GDP in January, which implies output grew by 0.1% within the three months to the top of February.

Giant-scale strike motion has been carried out in current months by lecturers, docs, civil servants and rail employees, amongst others — members of the sectors that had been the biggest contributors to the autumn in February companies output.

“There was anecdotal proof, reported on month-to-month enterprise survey returns, to recommend that industrial motion in February 2023 had a notable affect on totally different industries of various levels,” the Workplace for Nationwide Statistics mentioned Thursday. 

“These included the well being sector (nurses and the ambulance service), the civil service, the training sector (lecturers and college lecturers) and the rail community.”

In response to the figures, British Finance Minister Jeremy Hunt insisted that the nation’s outlook was “brighter than anticipated,” stressing that the U.Ok. is “set to keep away from recession due to the steps we have now taken,” in keeping with a number of information shops.

The impartial Workplace for Funds Duty now not expects the U.Ok. economic system to enter a technical recession in 2023 — outlined as two consecutive quarters of contractions. The nation’s fiscal place obtained a considerable increase from falling fuel costs.

This enabled Hunt to announce additional fiscal assist in his Spring Funds, which the Financial institution of England tasks will improve GDP by round 0.3% over the approaching years, though Britain’s tax burden stays at a 70-year excessive.

Recession fears ‘more likely to stalk the UK for a while’

Economists by and enormous don’t share Hunt’s bullishness, notably because the central financial institution continues to aggressively hike rates of interest so as to rein in persistently sky-high inflation, which unexpectedly jumped to an annual 10.4% in February.

Suren Thiru, economics director at ICAEW, mentioned the Thursday GDP figures “recommend that the economic system has misplaced momentum as sky-high inflation and strike motion proceed to tug on key drivers of U.Ok. GDP, notably companies and industrial manufacturing.”

“Recession fears are more likely to stalk the U.Ok. for a while because the increase to incomes from easing inflation and decrease vitality payments is considerably offset by rising taxes and the lagged affect of mountain climbing rates of interest,” Thiru added.

Charles Hepworth, funding director at GAM Investments, mentioned that Hunt’s competition that the financial outlook is trying brighter is “fairly some suspension of disbelief,” given the circumstances.

“Industrial strike motion was the first root reason for stagnating development within the U.Ok. over the month. March noticed continued hanging and April sees no lower, due to this fact we’re more likely to proceed to see the depressive impact on any development,” Hepworth mentioned.

PwC Senior Economist Barret Kupelian famous that the prevalence of strikes in massive sub-sectors of the economic system implies that the U.Ok. is “more likely to see a stop-start image sooner or later as properly,” in keeping with the month-on-month fluctuations in output.

“The massive image story is that right now’s launch, mixed with the revisions to financial exercise, takes the three month development fee to round 0.1%,” Kupelian mentioned. “The economic system continues to stagnate, with financial exercise struggling to develop past pre-pandemic ranges.”

The U.Ok. has now recovered to its pre-Covid ranges of output, the ONS confirmed, making it the final main economic system to take action. Economists have cited a number of distinctive components as driving this sluggishness, resembling Brexit-related lack of commerce and excessive ranges of financial exercise as a result of prevalence of long-term sickness. 

A lot of the inhabitants additionally stays mired in a cost-of-living disaster, as inflation continues to vastly outpace wage development, exacerbating the specter of additional industrial motion.

“With actual incomes nonetheless persevering with to fall, households going through considerably greater tax payments this yr and rates of interest trying set to rise additional, it’s laborious to see the place any significant restoration in development goes to come back from, and the stagnant image painted in right now’s numbers very a lot appears to be like as if it will likely be the norm for the foreseeable future,” mentioned Stuart Cole, chief macro economist at Equiti.

Backside of the G-20 desk

In its World Financial Outlook revealed Tuesday, the Worldwide Financial Fund projected the U.Ok. GDP will shrink by 0.3% in 2023, making it the worst performer in a G-20 (Group of Twenty) that features war-waging Russia.

The British economic system is anticipated to fall in need of Hunt’s two main fiscal guidelines – a falling public debt burden and a borrowing fee beneath 3% of GDP over the following 5 years.

The IMF supplied a rosier medium-term outlook than its personal earlier estimates and is now predicting annual GDP development of 1% in 2024, rising to 1.5% by 2028 — although this stays properly beneath the OBR forecast that underwrote Hunt’s Funds commitments.

The IMF predicts that the price range deficit will attain 3.7% of GDP by 2028, in comparison with the mere 1.7% projected by the OBR.

Responding to Tuesday’s IMF projections, Hunt highlighted that the U.Ok.’s development forecasts had “been upgraded by greater than some other G-7 nation.”

“The IMF now say we’re heading in the right direction for financial development. By sticking to the plan we’ll greater than halve inflation this yr, easing the stress on everybody,” he added.