According to Bloomberg Economics, Britain is likely already in a recession, as rising interest rates and unemployment have made households more cautious about spending.
According to the researcher, there is a 52% chance of a mild recession in the second half of this year, defined as two consecutive quarters of contraction. The analysis was released on Monday, ahead of the release of official GDP data on Friday.
A recession may increase the likelihood of the Bank of England lowering interest rates
A recession would be a headache for Prime Minister Rishi Sunak, who is scheduled to run for re-election next year. A recession may increase the likelihood of the Bank of England lowering interest rates, especially if inflation has fallen sharply.
“It will be a close call between stagnation and a mild contraction, but the odds are tilted marginally in favor of the latter,” Dan Hanson, an analyst at Bloomberg Economics, wrote in a note published Monday. “The risks are that the fall in output is a little sharper than we have penciled in.”
According to a Bloomberg survey conducted on Friday afternoon, economists predicted that GDP would fall 0.1% in the three months through September. The BOE anticipates that unemployment, which is currently at 4.3%, will rise to 5.1% by 2026.
“With the labor market loosening, consumers may feel more cautious about spending,” Hanson said. “This is even as their real incomes continue to rise over the winter. The September money and credit data from the BOE points to households saving more than they have in the recent past.”
Hanson is one of a few forecasters who have predicted a UK recession. According to surveys, output fell in the second half of the year, and job vacancies fell dramatically.
Bloomberg Economics’ model, which already predicts a mild recession, predicts a 70% chance of a third-quarter contraction following a 0.6% drop in GDP in July and only a partial rebound in August. The Bank of England forecasted a 50% chance of a recession during the forecast period last week.
Hanson said the prediction is based on a “model that uses high-frequency data and historical experience to capture the distribution of risks around the near-term outlook for growth.”
