The British economy showed signs of a modest recovery in August, with gross domestic product (GDP) rising by 0.2 percent, according to the Office for National Statistics. This follows a revised contraction of 0.6 percent in July. While economists had expected growth of 0.2 percent, the figures indicate a more balanced performance as the services sector offset weak performance in manufacturing and construction.
The services sector, which is the largest component of the UK economy, experienced growth of 0.4 percent in August. This positive performance helped to offset the contraction in manufacturing, which shrank by 0.8 percent, and construction, which contracted by 0.5 percent. It is worth noting that the rebound in August can partly be attributed to the absence of factors that had previously affected economic activity, such as wet weather and large-scale strikes.
However, concerns remain about the overall performance of the economy in the third quarter. The Bank of England (BOE) has predicted growth of just 0.1 percent for the period. To avoid a contraction and potential recession, GDP will need to rise by at least 0.2 percent in September. If the economy does experience a contraction during the quarter, it could signal that the country is already in a recession.
The recent increase in borrowing costs has been a factor contributing to the economic slowdown. The BOE’s decision to hold interest rates last month has fueled speculation that the aggressive hiking cycle, which has been the most significant since the late 1980s, may have come to an end. This uncertainty surrounding monetary policy has added to doubts about the future performance of the economy.
There are also warning signs from key purchasing managers’ indexes (PMI) and rising unemployment that further reinforce concerns about the economic outlook. Bloomberg Economics, for instance, is forecasting a yearlong contraction to begin in the final three months of 2023.
These latest figures highlight the delicate balance that the UK economy is currently facing. While the services sector has provided some support, the manufacturing and construction sectors continue to struggle. The impact of borrowing costs and uncertainty around interest rates further add to the challenges. As we await the final data for the third quarter, it remains to be seen whether the economy can regain momentum or if it will enter a period of prolonged contraction.
More detail via The Straits Times here… ( Image via The Straits Times )