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United Kingdom GDP Q3 2023

United Kingdom: Economy flatlines in Q3

GDP was flat on a seasonally adjusted quarter-on-quarter basis in the third quarter, below the 0.2% expansion recorded in the second quarter and in line with our panelists’ expectations. Q3’s reading marked the worst reading since Q3 2022. On an annual basis, economic growth clocked 0.6% in Q3. Looking at a monthly picture, the economy expanded in August and September following a sharp contraction in July that was partly due to industrial action in the health, education and transport sectors.

Private consumption contracted 0.4% in Q3 (Q2: +0.4% s.a. qoq). Public consumption shrank 0.5% in Q3 (Q2: +2.5% s.a. qoq). Fixed investment contracted 2.0% in Q3 (Q2: +0.8% s.a. qoq). Exports of goods and services rose 0.5% in seasonally adjusted quarter on quarter terms in the third quarter, which marked the best reading since Q3 2022 (Q2: -0.9% s.a. qoq). In addition, imports of goods and services deteriorated, contracting 0.8% in Q3 (Q2: +2.2% s.a. qoq).

Our Consensus is for another flat GDP reading in Q4, with the economy weighed on by tight financial conditions at home and a likely muted export performance.

On the outlook, Berenberg analysts said:

“Although the UK growth potential has slowed over the past two decades, private sector balance sheets have become much stronger as banks, households and businesses have fixed the cracks and holes that had left the UK so exposed to the 2008 financial meltdown. With strong balance sheets that provide a buffer to shocks, it would not be a major surprise if the UK adjusts to higher interest rates without falling into recession. […] After a flat H2 2023, we expect a gradual pick-up of momentum through 2024 from a qoq rate of 0.2% in Q1 to a trend rate of c0.4% by Q4.”

In contrast, Nomura economists are more pessimistic:

“GDP growth came in flat for Q3 2023, leading to us pushing back and diminishing our forecast for a UK recession. We now see a two-quarter recession beginning in Q4 2023, with a total contraction of 0.3%.”

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