(qlmbusinessnews.com Thurs, 14th Dec, 2023) London, UK —
“Storms and Rates: UK Economy Takes a Hit, Contracts 0.3% in October”
In an unforeseen turn of events, the UK economy contracted more than anticipated in October, grappling with the impact of heightened interest rates and the wrath of Storm Babet. The economy witnessed a 0.3% decline during the month, following a modest growth of 0.2% in September.
The surge in interest rates, implemented by the Bank of England to combat inflation, has put a dent in household spending, leading to a tangible economic slowdown. The central bank is poised to make its next rate decision this Thursday, adding to the air of uncertainty.
Simultaneously, severe weather conditions wreaked havoc on retail and tourism sectors in October as Storm Babet unleashed its force on the UK. Despite economists' predictions of a marginal 0.1% contraction, all major sectors, including services, manufacturing, and construction, reported contractions.
As the UK economy hovers in a state of stagnation, Prime Minister Jeremy Hunt vows to accelerate growth. However, substantial recovery isn't anticipated until January 2025, coinciding with the next general election.
Chancellor Jeremy Hunt acknowledged the subdued growth, attributing it to the effective role of interest rates in curbing inflation. On the contrary, Shadow Chancellor Rachel Reeves criticized the economic trajectory, stating that growth is “going backwards, leaving working people worse off.”
Recent data reveals a flatlining UK economy in the three months leading up to October, with services being the primary driver of the fall. The Office for National Statistics (ONS) highlighted contractions in the IT, legal, and film production sectors, exacerbated by adverse weather conditions during Storm Babet.
The persistent cost-of-living crisis and the measures taken by policymakers continue to influence economic dynamics. The Bank of England's 14 consecutive interest rate hikes until September aimed at curbing inflation have inadvertently impacted economic growth by raising borrowing costs for consumers and businesses.
With interest rates at a 15-year high of 5.25%, and expectations of sustained elevation, the economic landscape remains challenging. Chancellor Sunak's recent Autumn Statement introduced measures to boost growth by expediting private sector investments.
Mark Mills-Goodlet, Managing Director of Winchester Motor Group, expressed concerns within the business community about whether to invest amidst higher rates or adopt a wait-and-watch approach amid market uncertainties.
In the short term, forecasts suggest subdued UK growth due to persistent higher rates. Economist Yael Selfin predicts an escape from recession but foresees households enduring further challenges as fixed-rate mortgages for around 1.5 million homeowners expire next year, leading to increased repayments.
While the Bank of England's Governor, Andrew Bailey, indicated a reluctance to cut rates anytime soon, analysts foresee continued challenges for the UK economy. The Resolution Foundation's recent assertion that Britain is a “stagnation nation” underscores concerns about poor productivity and insufficient investment, emphasizing the imperative of stronger and sustained economic growth to uplift living standards.
Stay tuned for updates on the evolving economic landscape.
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