UK recession risk rises with unexpected fall in August production

The UK economy contracted unexpectedly for the second time in three months in August, raising the possibility that the country is now in recession.

The 0.3 percent drop in output was due to a sharp decline in manufacturing and a small drop in services, the Office for National Statistics said on Wednesday. Economists had not expected growth in the month.

The decline means the economy will be lucky enough to avoid a slowdown in the third quarter, marking the start of a cost-of-living recession that many analysts expect will last at least into the early months of 2023.

Chancellor of the Exchequer Kwasi Kwarteng pointed to Russian President Vladimir Putin’s attack on Ukraine as the biggest factor bringing Britain’s economy to its knees.

“Countries around the world are currently facing challenges, particularly due to high energy prices caused by Putin’s barbaric actions in Ukraine,” Kwarteng said in a statement. “This government has acted quickly to put in place a comprehensive plan to protect families and businesses from rising energy costs this winter.”

To get away with a flat third quarter, the economy would need to expand 1.1 percent in September, which is an unlikely result given the extra holiday for Queen Elizabeth II’s funeral and the mourning period leading up to it. Most economists estimate that production has fallen sharply over the past month.

Of the three main sectors, only construction increased. Services fell 0.1 percent and manufacturing fell 1.8 percent, driven by a 1.6 percent contraction in manufacturing.

The largest services came from arts, entertainment and leisure activities, followed by a health slowdown. Production declined due to declines in mining and quarrying, as well as lower production from manufacturing, power and natural gas. Maintenance work at larger terminals led to a sharp drop in oil and gas production.

Consumers and businesses face a tough journey in the coming months. While tens of billions of dollars in government support for energy bills will provide a cushion, inflation is expected to rise back into double digits and the Bank of England is expected to respond by aggressively raising borrowing costs.

Concerns about the governance of the economy under Prime Minister Liz Truss have also hit stocks, bonds and the pound, destroying wealth and making foreign goods and travel more expensive. UK recession risk rises with unexpected fall in August production

Fry Electronics Team

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