UK Q4 GDP: Avoiding A Recession?

Person Holding White and Blue Box

Image Source: Pexels

Tomorrow there is a trove of UK data before the market opens. But the most important is likely to be the first look at GDP figures for the last quarter. That could be the make-or-break instance for the BOE and even the government’s policy and could set up how the pound performs in the near future.

Back in October, the BOE and the government acknowledged the country was already effectively in a recession, even though it hadn’t reached the technical definition. That was after the third quarter showed negative GDP growth, with the expectation that the fourth quarter would show the same. However, the comparables set up a somewhat unusual situation that could lead to the country technically avoiding a recession.

It’s all about the comparables

The consensus of expectations is that the UK will report preliminary Q4 GDP of 0.1% quarterly, compared to -0.3% in the third quarter. But on an annual basis, there is expected to be a significant slowdown. Annual GDP is expected at 0.2% compared to 1.9% prior. That is effectively stagnation.

Here’s where the comparables come in. With a drop in economic activity in the prior quarter, a small “correction” could include a positive reading in the last quarter. But 0.1% growth after -0.3% contraction still indicates a downward trend. Meanwhile, the annual comparison is to the final quarter of 2021, which saw a strong rebound as the final covid variant of concern, omicron, didn’t lead to renewed lockdowns or substantial restrictions on economic activity. That was also before the war in Ukraine drove up energy prices, hurting industrial activity.

The strikes have their effect, too

Speaking of industrial activity, and economic activity more broadly, the final month of last quarter saw an intensifying of strikes across multiple sectors. Port workers had been striking for months, but rail strikes were seen as having a bigger impact on economic activity.

Tomorrow also sees the release of Manufacturing production for December, which is expected to show further decreases in activity. Monthly production is expected to fall -0.2% compared to -0.5% prior. Annual production is expected to accelerate downwards to -6.0% compared to -5.9% prior.

Inflation just won’t give up

The rising cost of living will naturally lead to workers demanding higher pay. But higher pay increases the cost of goods, which will also drive up inflation. This is a continuing worry for the BOE, as inflation remains in the double digits despite raising rates to the highest level since the Great Financial Crisis.

To compound the problem, slowing industrial production, which happens when workers down tools, also contribute to higher inflation. It also contributes to slowing the economy, limiting the action the BOE can take to cut inflation. The strike situation in the UK could keep inflationary pressures going, and continue to weaken the pound. Which also contributes to higher inflation.

More By This Author:

Intraday Analysis – USD Seeks Support
Why Powell’s Latest Comments Shook Up The Market
Intraday Analysis – XAU Remains Under Pressure

Disclaimer: Orbex LIMITED is a fully licensed and Regulated Cyprus Investment Firm (CIF) governed and supervised by the Cyprus Securities and Exchange Commission (CySEC) (License Number ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.