Hunt warns of ‘tough road ahead’ as shrinking UK economy faces recession – business live | Business
Hunt: tough road ahead
The news that Britain’s economy is halfway into recession, after shrinking 0.2% in the last quarter, is a sickener ahead of next week’s autumn statement.
Chancellor Jeremy Hunt has blamed the invasion of Ukraine, and Russia’s ‘weaponisation’ of gas suppliers, for hitting growth and pushing up inflation.
Hunt also warns there is a ‘tough road ahead’, and some ‘extremely difficult decisions’ (a sign he is determined to slash spending and hike taxes, even though that will hurt the economy).
Hunt says:
“We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.
“I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.
“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.”
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Full story: UK heads for long recession as economy shrinks by 0.2%
Richard Partington
Britain’s economy shrank by 0.2% in the three months to September, in what is expected to be the beginning of a long recession.
In its first estimate of growth in the third quarter, the Office for National Statistics (ONS) presented a bleak picture of the economy before next week’s autumn statement from the chancellor, Jeremy Hunt.
Activity in the service sector ground to a halt, with zero growth over the quarter, driven by a fall in consumer spending as households came under mounting pressure from the cost of living crisis.
Growth in the construction sector slowed, while factory output slumped because of a sharp decline in manufacturing as some businesses continued to struggle with supply chain difficulties and shortages of key materials.
The Bank of England expects the latest gross domestic product figures to be the start of a prolonged UK recession – as rising interest rates and the cost of living take their toll on activity – lasting until the end of next year. Another negative growth figure for the final three months of 2022 would confirm a technical recession. The economy grew by 0.2% in the second quarter of 2022.
Hunt said that the world economy was facing a period of “extreme turbulence” but that the “fundamental resilience of the British economy is cause for optimism in the long run”.
He added:
“I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability.
But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”
The ONS said the performance of the economy in the three months to September had been affected by the extra bank holiday for the funeral of Queen Elizabeth II, which led to weaker activity.
Hunt: We’ve learned you can’t do unfunded spending or borrowing
Chancellor Jeremy Hunt says he’s learned the lessons of Kwasi Kwarteng’s mini-budget:
Speaking to Sky News, Hunt responded to Kwarteng’s comments yesterday that Liz Truss’s government can’t be blamed for the black hole in the nation’s finances.
Hunt says:
When we produced a fiscal statement that didn’t show how we were going to bring our debts down over the medium term, the markets reacted very badly.
We’ve learned that you can’t fund spending or borrowing without showing how you’re going to pay for it. And that’s what we’re going to do.
Hunt added that people and businesses suffer if the UK doesn’t show it is fiscally responsible:
“Well, there is some choice over the rules, or the fiscal rules, that you choose to follow, but there isn’t uncertainty about a basic choice we make as a country, which is whether we’re going to pay our way.
“And if we don’t give that certainty to the world, what we’ll see is higher interest rates, higher inflation, more instability, and more worries for families and businesses.
“And that’s why it’s so important to show the world that we are a country that pays our way.”
Hunt: disappointing but not entirely unexpected that UK could fall into recession
Chancellor Jeremy Hunt says he wants to protect vulnerable businesses and families through the downturn.
Soeaking to broadcasters this morning, Hunt was asked of the UK is heading into recession.
He said:
“Well, the Bank of England says we are likely to be in recession. This is disappointing but not entirely unexpected news.”
Hunt added that he will present a plan next week to get through this ‘difficult period’:
“According to the International Monetary Fund, around a third of the world’s economy is in recession this year or will be in recession next year.
“And that is principally but entirely because of very high global energy prices. We are not immune to that in the UK and what we need is a plan that shows how we are going to get through this difficult period. If it is a recession, how are we going to make it shallower and quicker, so that we can protect businesses who are really struggling, as these figures show.
“But also give families so hope that we’ll get through to the other side with the most vulnerable people protected.”
Today’s GDP figures are “dreadful news”, says the Federation of Small Businesses.
FSB chairman Martin McTague warns the outlook is extremely bleak:
“Confirmation of a shrinking economy is dreadful news for small businesses that have been facing increasing recessionary pressures for months now.
“Lower levels of reserves and resources mean they are more vulnerable to downturns, and at a time when confidence is deteriorating in both consumers and businesses, the outlook for the UK economy is now very bleak indeed.
“The fall in GDP is one headline figure made up of countless bits of disappointing news for small businesses across the country – a new venue or premises they couldn’t open, a contract which ended unexpectedly, a staff member they had to let go.
“Taken together, the impact on the economy is huge and the Government must demonstrate that it has grasped the scale of the issue.”
The UK is embarking on a ‘classic slide’ into recession, says Guy Foster, chief strategist at wealth manager RBC Brewin Dolphin.
“Economic growth was less bad than feared but the pressure from rising interest rates will intensify going forward, house prices have started falling and the labour market is beginning to ease. The UK economy is showing the signs of a classic slide into recession.
“The good news is that there is some evidence of global inflationary pressures easing, and without serious imbalances in terms of excess household borrowing, the economy should also be able to recover when policy eventually eases.”
The scale of the looming UK recession will partly depend on how much support the government provides for energy bills, says Dutch bank ING.
ING predicts UK GDP will fall by 2% by the middle of 2023, a comparable hit to the 1990s recession.
But a lot will depend on what Jeremy Hunt announces next week, and what help will be available once the energy price freeze ends in April.
ING predicts that bills will soar for most households once the six-month package of help ends, after Hunt ripped up Liz Truss’s two-year freeze.
The Chancellor has signalled support for households will become more targeted in a bid to make the policy less costly. The challenge here is that there’s no easy way of targeting support efficiently, and it may be that the Chancellor simply differentiates households by whether they receive means-tested income support. The upshot is that we could see the majority of households shift back to paying the Ofgem-regulated price, which is updated quarterly.
The sharp fall in wholesale gas prices could see most households paying £3,300 on average during FY2023, compared to £2,500 annually under the government guarantee. That would equate to roughly 9% of household disposable income and would add a further drag to overall economic activity next summer.
Austerity mark 2 would compound the crisis – economist
Jeremy Hunt may warn of a ‘tough road ahead’, but it’s clear that a blizzard of spending cuts and tax increases will further hurt growth.
A bout of ‘austerity mark 2 ‘ would compound the cost of living crisis, and rising borrowing costs, says Thomas Pugh, economist at audit, tax and consulting firm RSM UK.
‘Looking ahead, the squeeze on household real incomes will intensify as rising interest rates join soaring inflation. What’s more, the upcoming round of austerity, we’re expecting Chancellor Hunt to impose about £50bn of tax rises and spending cuts, means that government consumption will start to be a drag on GDP while the huge rise in business borrowing costs will weigh heavily on investment.
In addition, a global economic recession means that large rises in export volumes are unlikely to continue.
‘All this suggests that the contractions in GDP are not only likely to continue, but will get worse through the first half of next year.
The 0.2% drop in GDP in July-September marks the start of the recession, predicts Paul Dales of Capital Economics.
He predicts the economy will shrink for around a year:
As the effects of the extra [September] bank holiday will have dropped out in October, GDP may rebound and turn positive again that month and at the start of Q4.
But Q4 is also when the drag from high inflation will be particularly large and the cumulative effect from rising interest rates will be building. We think these effects will mean that GDP continues to fall for about a year, resulting in a peak-to-trough decline in GDP of around 2%.
UK on course for quickest return to recession since 1975
The UK is on course for its quickest return to recession in almost half a century, reports the Resolution Foundation.
They point out that the UK only emerged from the pandemic downturn eight quarters ago.
If the economy shrinks in Q4, it would be the fastest return to recession since the mid-1970s, when there were only four quarters between recessions in 1974 and 1975.
James Smith, research director at the Resolution Foundation, says Jeremy Hunt must try to prevent the cost of living crisis getting any worse:
“Falling consumer spending has caused the economy to shrink in the third quarter of 2022. This has set Britain on course for the quickest return to recession in nearly half a century.
“These latest figures provide a sobering backdrop to the Autumn Statement next week. The Chancellor will need to strike a balance between putting the public finances on a sustainable footing, without making the cost-of-living crisis even worse, or hitting already stretched public services.”
Falling GDP makes Hunt’s task even harder
A shrinking economy will make it even harder for Jeremy Hunt to raise tax revenues, points out Victoria Scholar, head of investment at Interactive Investor.
With pressures from the cost-of-living crisis, the war in Ukraine and rising interest rates, the UK economy appears to be on track to fall into a recession by the fourth quarter, in what could be the longest period of economic contraction in at least a century.
Chancellor Jeremy Hunt has a tough job ahead as he prepares to deliver his Autumn Statement on Thursday.
The latest UK GDP figures make plugging the £60 billion black hole even more challenging with the prospect of diminishing tax receipts as the economic backdrop deteriorates.”
Labour: Tories failing on growth
Rachel Reeves MP, Labour’s Shadow Chancellor, pins the blame for the looming recession firmly on the government.
She says:
“Today’s numbers are another page of failure in the Tories’ record on growth. And the reality of this failure is family finances crunched, British businesses left behind and more anxiety for the future.
“Britain’s unique exposure to economic shocks has been down to
aConservative led decade of weak growth, low productivity and underinvestment and widening inequality.“We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity.
“Britain has so much potential to grow. We have the talent. We have the capacity. Labour’s Green Prosperity Plan, our modern Industrial Strategy, our plan to boost skills and our active partnership with business will get our economy firing on all cylinders.”
Hunt: tough road ahead
The news that Britain’s economy is halfway into recession, after shrinking 0.2% in the last quarter, is a sickener ahead of next week’s autumn statement.
Chancellor Jeremy Hunt has blamed the invasion of Ukraine, and Russia’s ‘weaponisation’ of gas suppliers, for hitting growth and pushing up inflation.
Hunt also warns there is a ‘tough road ahead’, and some ‘extremely difficult decisions’ (a sign he is determined to slash spending and hike taxes, even though that will hurt the economy).
Hunt says:
“We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.
“I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.
“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.”
UK economy smaller than before Covid
The UK economy is smaller than it was before the Covid-19 pandemic began.
GDP was estimated to be 0.2% below its pre-coronavirus levels of February 2020, following the 0.6% drop in GDP in September.
In contrast, the US economy returned to its pre-Covid levels in the middle of 2021 (although its GDP did then fall in the first half of 2022).
Reuters has spotted that the ONS have revised up earlier GDP figures, to show the economy was in better health over the summer:
Gross domestic product data for August was revised to show a marginal 0.1% contraction compared with an original reading of a 0.3% shrinkage, and GDP in July was now seen as having grown by 0.3%, up from a previous estimate of 0.1%.
https://www.theguardian.com/business/live/2022/nov/11/uk-economy-gdp-recession-trade-hunt-stock-markets-ftse-pound-business-live Hunt warns of ‘tough road ahead’ as shrinking UK economy faces recession – business live | Business