The UK economy experienced stagnation in the third quarter of this year, counteracting predictions of a decline. According to the Office for National Statistics, gross domestic product (GDP) remained unchanged between July and September, following a slight growth in the previous three months and in the first quarter.
A poll conducted by The Wall Street Journal showed that economists had anticipated a slight decline in GDP. However, despite the stagnation, economist Paul Dales from Capital Economics emphasized that the economy is not weak enough to swiftly combat inflation. Consequently, the Bank of England will be unable to decrease its high interest rates until late next year as it aims to regulate the economy.
Notably, prices increased by 6.7% in September, with service prices playing a significant role in maintaining inflation above the target level.
The Office for National Statistics reported that there was 0.2% growth in September, primarily driven by an upturn in the services sector. This helped offset the 0.6% decline experienced in July. Although services experienced a minor decline for the quarter overall, there was a slight rise in construction output. Additionally, industrial production remained at par quarter-on-quarter.
Compared to the same quarter last year, the UK economy demonstrated a growth rate of 0.6%, as reflected in the figures provided.
The Bank of England Predicts Minimal Economic Growth with No Recession
The Bank of England has recently released forecasts stating that the economy is expected to grow minimally over the next two years, but a recession is not foreseen. The current unprecedentedly high interest rates have resulted in slack in the economy, causing unemployment to rise further. This rise in unemployment is expected to help ease wage growth and reduce inflation, according to the bank. However, achieving a headline inflation below the 2% target may not happen until the end of 2025.
According to the bank, the unwinding of second-round effects in domestic prices and wages is expected to take longer than it did for them to emerge initially.
Despite these challenges, the country is projected to remain resilient in the last months of the year. Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, believes that household spending, which experienced a decline in the third quarter, will bounce back as real incomes continue to recover. Tombs stated in a research note that wages are expected to rise more quickly than consumer prices in the fourth quarter as energy bills fall further and goods prices stabilize.
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