Britain is most likely going into recession as rising interest rates and rising unemployment have caused households to be more cautious about their spending. This is according to an analysis by Bloomberg Economics, which estimates that there is a 52% chance of a “mild recession in the second half of 2023”. Against this background, the business that is doing best and at the moment practically “circumvents the recession” is the service sector, writes Reuters.
While it lost momentum for a third straight month in October as high interest rates and the cost of living pressured demand, the services business showed it was handling the recession well. However, things are not rosy here either. New orders in the Island fell at their fastest pace this year, reflecting weak domestic demand, although overseas orders from the US and the Middle East were strong.
One of the richest European countries fell into recession
It is the fifth largest economy in the Eurozone
British inflation hit 6.7% in September, making it the highest of any advanced economy. However, the services sector showed the weakest increase in business output costs since February 2021 as falling input costs and supplier discounts offset continued upward pressure from rising wage bills and fuel costs.
Services company prices rose the most in three months, but the gains were smaller than in the first half.
A problem for the authorities
A recession would be a “serious headache” for British Prime Minister Rishi Sunak, who has to take part in an election next year, political analysts say. A recession could increase the chances of the Bank of England moving to cut interest rates, especially if inflation falls sharply, as it expects.
“It will be a close difference between stagnation and a slight contraction, but the odds are slim in favor of the latter. The risks are that the decline in production is a bit sharper than we have previously noted“says Dan Henson, an analyst at Bloomberg Economics.
Economists forecast that UK GDP fell 0.1% in the three months to September, a Bloomberg survey showed on Friday afternoon. The BOE expects unemployment, now at 4.3%, to rise to 5.1% by 2026.
Last week the Bank of England estimated a 50% chance of a recession in its forecast period.
A recession threatens the Eurozone economy this year
Gross domestic product in the eurozone member countries fell by 0.1% in the third quarter