Source: AUN News
The British economy contracted slightly in the second quarter, losing momentum as the country faces a worsening cost-of-living crisis, with economists predicting a recession later this year.
According to the Office for National Statistics, GDP fell 0.1 percent from April to June compared to the previous quarter, when the economy grew 0.8 percent. The most significant drag on growth in the second quarter was a decrease in health services as pandemic measures such as coronavirus testing and vaccine administration declined. Growth in consumer-facing services such as travel agencies, restaurants, and hotels, as well as spending related to the Queen’s Platinum Jubilee, only partially offset this.
Britons face a bleak prospect of stagnant or declining economic growth combined with one of the highest inflation rates among rich-economy peers. In June, inflation reached 9.4 percent, the highest level in 40 years, but it is not expected to reach 13 percent until October. The Bank of England, which has been steadily raising interest rates since December in an attempt to slow the country’s rapid price rises, predicted last week that the government would enter a prolonged recession at the end of the year, from which it would not emerge until the beginning of 2024.
High inflation squeezes household budgets and is expected to result in a sharp decline in consumer spending, which is usually a significant driver of economic growth. At the same time, soaring energy prices are also a business constraint. Household income, adjusted for inflation and taxes, is expected to fall sharply this year and next, the central bank said, in the worst decline since records began in the 1960s.
British households, in particular, are bracing for unsettlingly high energy bills. When the government price cap is reset in October, it could be 3,500 pounds ($4,256) per year, three times the amount a year ago. However, the consequences of high inflation are already visible: Consumer spending fell 0.2 percent in the second quarter after accounting for price increases.
Global Financial Institutions
Worldwide, warnings about low growth and high inflation are being issued. The International Monetary Fund warned late last month that the world is “on the verge of a global recession.”The United States economy also contracted in the second quarter, following a decline in the first, sparking a debate about whether the country was already in a recession.
The British economy is suffering from the pandemic’s aftereffects and the financial fallout of Russia’s invasion of Ukraine. Growth was hindered in the second quarter by declining wholesale and retail business operations. Companies reported that supply chain disruptions were still a problem and that consumers were cutting back on their spending to deal with the rising cost of living, which led to a decline in retail sales.
According to the National Institute of Economic and Social Research, the British economy is already in a recession. This emphasizes how difficult the competition is for the position of the next prime minister, which will be decided by the end of next month. As Britain’s economic prognosis worsens, Rishi Sunak, a former chancellor of the Exchequer, and Liz Truss, the foreign secretary, have disagreed on the best strategy for supporting more households through tax cuts or direct payments.
Analysis by: Advocacy Unified Network