UK financial system shrinks in August as value of dwelling disaster bites

The UK financial system disenchanted expectations and shrank in August as the price of dwelling disaster hit family budgets and enterprise exercise.

Gross home product fell 0.3 per cent between July and August, in keeping with information revealed on Wednesday by the Workplace for Nationwide Statistics.

Economists polled by Reuters had anticipated no month-on-month change.

Within the three months to August, output was down 0.3 per cent in contrast with the earlier three months, additionally decrease than analysts’ expectations.

Industrial manufacturing contracted 1.8 per cent between July and August and companies registered a 0.1 per cent fall.

Grant Fitzner, ONS chief economist, mentioned a part of the contraction in industrial output was as a result of fall in oil and fuel manufacturing brought on by North Sea summer season upkeep.

He added that well being additionally contributed to the GDP decline, with a drop within the variety of hospital consultations and operations.

Sports activities occasions additionally had a slower month after a powerful July, whereas many different consumer-facing companies struggled, with retail, hairdressers and lodges all faring comparatively poorly.

Commenting on the GDP information, chancellor Kwasi Kwarteng highlighted hovering power costs brought on by Russia’s invasion of Ukraine, and expressed confidence that the federal government’s plan would “develop our financial system”.

On Tuesday, the Worldwide Financial Fund downgraded the UK financial outlook, forecasting a 0.3 per cent growth subsequent yr, down from 3.6 per cent this yr.

Brian Coulton, chief economist on the score company Fitch, expects a extra extreme downturn, with the financial system shrinking by 1 per cent in 2023, reflecting market turmoil and the prospect of upper rates of interest following the federal government’s massive unfunded tax cuts introduced final month.

Robert Alster, chief funding officer on the funding administration firm Shut Brothers Asset Administration, mentioned that “loads will rely on what the chancellor says within the Price range subsequent month”, when the Treasury will search to bolster confidence within the UK’s debt sustainability.

“Until they succeed, monetary circumstances will stay tight, and are prone to weigh on development,” he added.