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United Kingdom GDP January 2023

United Kingdom: Economy records sharpest contraction since Q1 2021 in the third quarter

GDP contracted 0.2% on a seasonally adjusted quarter-on-quarter basis in Q3 (Q2: +0.2% s.a. qoq). Q3’s reading marked the worst result since Q1 2021. As a result, the economy is now below its pre-pandemic level of output. That said, in September activity was hampered by business closures due to an additional bank holiday for the Queen’s funeral ceremony; this artificially dragged down the Q3 reading slightly.

Private consumption contracted 0.5% in Q3, marking the worst result since Q1 2021 (Q2: +0.2% s.a. qoq) and hampered by declining real wages. Public consumption bounced back, growing 1.3% in Q3 (Q2: -1.5% s.a. qoq). Meanwhile, fixed investment rebounded, growing 2.5% in Q3, contrasting the 1.4% contraction logged in the prior quarter. However, this rebound was solely driven by a large expansion in government investment; private investment declined amid uncertainty and tighter financial conditions.

Exports of goods and services growth sped up to 8.0% seasonally adjusted quarter on quarter in the third quarter (Q2: +3.6% s.a. qoq). Conversely, imports of goods and services declined at a sharper pace of 3.2% in Q3 (Q2: -1.5% s.a. qoq).

On an annual basis, economic growth moderated to 2.4% in Q3, following the previous quarter’s 4.4% increase.

The economy is expected to continue contracting in quarter-on-quarter terms over the next several quarters due to tighter monetary policy and a more restrictive fiscal stance.

On the Q3 reading and the outlook, analysts at Berenberg said:

“A surge in highly volatile components such as government spending (1.3% qoq) and exports (8.0% qoq) offset the drop in domestic consumption. When the volatility for such components unwinds in coming quarters, combined with a further weakening of household consumption, it will be obvious that a sharp but short recession had already begun in Q3. The data show that the UK appears to be the first among major advanced economies to have fallen into recession.”

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