- David Davis says two key factors may risk ‘longer recession’
David Davis says two key factors may risk ‘longer recession’
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New figures from the Office for National Statistics (ONS) have revealed the UK economy grew by 0.1 percent in November, despite predictions suggesting it would contract by 0.3 percent. Thanks to pubs and restaurants receiving a boost during the World Cup, the country’s gross domestic product (GDP) rose for the month. However, experts are sounding the alarm that peoples’ recession fears should not go away as there is still a “very gloomy outlook” for the economy.
Britons are currently in the midst of a cost of living crisis which is being caused by soaring energy bills and continuously rising energy prices.
Energy bills have risen by 27 percent for the average household with typical usage even with Government support in place.
While inflation has eased in recent months, the Bank of England has been forced to intervene by increasing the base rate.
Even though savers have received a boost from this interest rate rise, those in debt and people with mortgages have been detrimentally impacted, and the likelihood of recession has increased.
Jeremy Batstone-Carr, the European strategist at Raymond James Investment Services, shared his thoughts on why there is a “gloomy outlook” for the UK economy despite today’s figures.
He said: “This meagre growth of 0.1 percent simply muddies the fact that the UK by now will likely be in its widely anticipated recession.
“What’s more, the effects of the Bank’s monetary tightening are still to feed through the economy fully. Together with the corporation tax increase to 25 percent and the expiration of the tax reduction on new investments, the economy only stands to contract further.
“This worsens the UK’s global position, which already trails its G7 peers. This will be on the Bank’s mind when it makes its next interest rate decision on the 2nd of February. All in all, a very gloomy outlook – albeit with a slither of slightly good news today.”
Alice Haine, a personal finance analyst at Bestinvest, broke down what these latest GDP figures really mean for household finances.
She explained: “With the UK falling behind other advanced economies amid tearaway inflation driven by Putin’s invasion of Ukraine, rising interest rates, labour shortages and lingering supply chain pressures, the road ahead still appears bleak.
“The OECD expects the UK economy to shrink in 2023, while the Office for Budget Responsibility says the recession will last just over a year, with output shrinking 1.4 percent this year.”
The personal finance expert noted there are positive signs the economy is improving, notably the fact energy prices are showing signs of easing back.
While this may be an indicator of a shallower recession, the analyst warned that there are still reasons for households to be concerned in the interim period.
Ms Haine added: “However, energy prices are still far higher than historic norms and with the shortage of workers affecting more than a quarter of UK businesses, due to large numbers of people becoming economically inactive – partly driven by high long-term sickness rates and huge NHS waiting lists, as well as an increase in early retirement – there are still plenty of challenges ahead.
“A slowing economy is never good news for household finances as it signals that companies are making less money and cutting investment – something that could see salaries fall and unemployment rise.”
Households are currently dealing with inflation at a 40-year high of 10.7 percent, falling real incomes, higher borrowing costs and hiked taxes, on top of the threat posed by recession.
The Financial Conduct Authority (FCA) has warned more than 750,000 households face defaulting on their mortgages over the next two years due to inflated borrowing costs.
As of the end of June 2022, 200,000 households are already behind on their mortgage payments with the situation likely to worsen with interest rates on the rise.
Over 800,000 households, which are currently on fixed-rate mortgages under two percent, are facing a sharp rise in their repayments once their deals come to an end this year.
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