Surging Prices Hit UK Economic Growth, Raise Recession Risk

  • Britain's economy grew by less than expected in July, raising the risk that it is already in a recession, with the sharp climb in energy tariffs hurting demand for electricity and a leap in the cost of materials hitting the construction sector.
  • In the three months to July, GDP was flat compared with the previous three-month. Some economists said Monday's data suggested the economy might be on course to shrink in the July-September period having contracted by 0.1% in the April-June quarter. "This would mean that the UK enters a technical recession for the first time since lockdown restrictions ended," Jake Finney, an economist at PwC, said.
  • In August, the Bank of England forecast a recession for the world's fifth-biggest economy lasting from the end of 2022 until early 2024, due in large part to the hit to living standards from energy prices, pushed up by the war in Ukraine.
  • But last week Liz Truss announced a cap on domestic energy tariffs which - along with an expected round of tax cuts - reduced the risk of such a protracted hit to the economy, albeit at a cost of 100Bn pounds (US$116Bn) further pressuring Britain's already stretched public finances.

(Source: Reuters)