UK (Commonweath Union)_ According to official figures, the UK economy contracted by 0.3% in August compared to July due to a decline in manufacturing and maintenance work that slowed the oil and gas industry. The Office for National Statistics said that manufacturing fell by 1.6%, sending a clear message that the UK is approaching a recession. The cost-of-living problem also seemed to be affecting the hospitality, dining and leisure sectors.
According to a Reuters survey of economists, August would have seen no growth rather than a 0.3% fall. A 0.1% uptick in July was a fluke, mostly brought on by a minor rebound from the Queen’s platinum jubilee festivities, as the gross domestic product (GDP) fell by 0.3% during the three months to August.
The construction industry grew by 0.4% as increased activity in housing offset decreased maintenance. Cuts to health care spending, however, caused the much bigger services sector to contract by 0.1%. Production dropped by 1.8% in the food and lodging services industry and by 5% in the arts, entertainment, and recreation sector. The Coronavirus pandemic’s impact on state expenditure was another significant factor in the industrial downturn, which was exacerbated by pharmaceutical industries’ reduced output.
The fall was attributed by the chancellor, Kwasi Kwarteng, to the state of the world, particularly the conflict in Ukraine, which has significantly raised energy prices. Former deputy governor of the Bank of England Charlie Bean claimed that the economy was headed towards stagnation. Speaking on BBC radio, he said that the recession was likely to be short-lived provided the government moved on with a large injection of extra money into the economy in the shape of tax cuts and financial support with energy bills as detailed in the mini-budget.
According to Pantheon Macroeconomics’ senior UK economist, Samuel Tombs, the GDP decline in August certainly signaled the beginning of a negative trend that will go far into 2019. He encouraged the chancellor to provide more information on how the tax-cutting proposals will be paid in order to calm the financial markets, warning that the budget measures must be genuine.
