In the second three months of the year, according to official data released on Friday, the gross domestic product (GDP) decreased by 0.1% quarter over quarter, less than the 0.3% contraction predicted by analysts.
According to Hussain Mehdi, macro and investment strategist at HSBC Asset Management, “U.K. growth is stagnating as the economy faces headwinds from a severe real income squeeze amid soaring inflation and increasing interest rates.
In the second quarter of 2022, as the country’s cost-of-living issue took hold, the U.K. GDP shrank.
In the second three months of the year, according to official data released on Friday, the gross domestic product (GDP) decreased by 0.1% quarter over quarter, less than the 0.3% contraction predicted by analysts.
It follows the first quarter of the year’s GDP growth of 0.8%.
The U.K. economy would likely experience its longest recession since the global financial crisis in the fourth quarter, the Bank of England warned last week. Meanwhile, a high in inflation above 13% is anticipated for October.
According to monthly estimates, the GDP contracted by 0.6% in June, which was less than the consensus projection of 1.3% but less than the 0.4% expansion in May.
According to Hussain Mehdi, macro and investment strategist at HSBC Asset Management, “U.K. growth is stagnating as the economy faces headwinds from a severe real income squeeze amid soaring inflation and increasing interest rates.”
“Given this background, it will be challenging to avoid recession, particularly given upside risks to energy costs as winter approaches.”
According to consultant Cornwall Insight, the U.K.’s energy price cap is anticipated to reach £4,266 ($5,191.96), which would put millions of people in financial difficulty.
HSBC predicts that large-cap U.K. shares will outperform this year despite macroeconomic challenges because of their “exposure to commodity, value, and defensive names.
The Office for National Statistics, which releases the growth numbers, claimed that the decrease was primarily caused by a drop in service production, with health and social work activities, which represent a decline in Covid-19 activities, acting as the biggest drag.
In the second quarter, household spending fell by 0.2%, although this was countered by a boost from net trade, according to the report.
According to senior economist at PwC Barret Kupelian, “inflation has started to take a toll on U.K. economic activity like clockwork, with household expenditure dropping by 0.2% quarter on quarter.”
9.4% was a 40-year high for inflation in July, and it is anticipated to rise much further through the fall.
The hospitality industry and other consumer-facing industries received some good news, but Kupelian predicted that these developments would be fleeting as the weather turned cooler and tourism fell off.
“The United Kingdom has entered a period of sluggish growth and rising inflation. Financial conditions have been tightened by the Bank of England, so attention is now focused on policymakers to assist mould the future sources of growth.
According to Office for National Statistics
