Previously, the UK statistics office had assumed a contraction of 0.2% over the past three months. The economy in Britain was primarily depressed by a 2.5 percent drop in manufacturing. The country is mainly in the throes of a crisis due to rising costs. Last year, the economy was still burdened by the severe coronavirus measures.
Despite the bad news, the blow isn’t too bad, thinks macroeconomist Erik-Jan van Harn of Rabobank. ‘We have often seen that a small difference arises after an overhaul. It is not very unexpected that the figure deviates somewhat from previous estimates.’
Britain’s central bank warned last month that the British economy will slip into a recession. According to policy makers, this period of contraction could last up to two years if interest rates continue to rise sharply. Even without rate hikes, the economy would contract through the end of 2023, according to estimates.
‘Fun is different’
An important signal, says Van Harn. ‘It’s actually very surprising because central banks and government organizations are reluctant to predict a recession, for fear of a self-fulfilling prophecy. The Bank of England has done it now, the ECB, for example, hasn’t done it yet.’ Rabobank therefore assumes that this is the starting point of a recession. “We expect a contraction for the next quarters. No deep and severe recession, but it won’t be fun.’
And this also has consequences for the Netherlands, one of Great Britain’s most important trading partners. “Trade with the EU has decreased since Brexit, but it will still be felt, especially in agriculture,” thinks Van Harn.
Woe to Hunt
The contracting economy makes it difficult for British Chancellor of the Exchequer Jeremy Hunt to implement his policies. Hunt wants to raise taxes and cut spending, among other things. UK household income is now down for the fourth quarter. According to economists, living standards for Britons are on track to fall to their lowest level in decades. Adjusted for inflation, per capita disposable income decreased by 0.5% in the third quarter.
Thursday’s data underscores the purchasing power crisis, which has unleashed the worst industrial turmoil in decades. British workers, from machinists to nurses, have been on strike for months to demand wage increases in line with inflation.