Monday , 27 May 2024
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Global Economy

Britain faces recession

A particularly high inflation rate and the consequences of the Ukraine war and the pandemic are causing the UK economy to shrink. In June, the country's economic output fell by 0.6 percent compared to the previous month. From April to June, gross domestic product (GDP) fell by 0.1 percent compared to the previous quarter. This is the result of the latest estimates from the Statistics Office (ONS), which were published today.

The decline in the second quarter was therefore not as pronounced as expected. Economists had forecast a minus of 0.3 percent after a plus of 0.8 percent at the beginning of the year. Finance Minister Nadhim Zahawi saw the economic data as a sign of how resilient the British economy was.

Central bank expects recession

The Bank of England is less optimistic. Central bankers expect the country to slide into a recession by the end of the year, which could last for the whole of next year. It would be the longest economic downturn on the island since the global financial crisis. Suren Thiru from the Institute of Chartered Accountants in England and Wales (ICAEW) is also pessimistic: "A recession is approaching for the UK and the worst is yet to come."

Nevertheless, in the fight against high inflation, the British central bank recently raised the key interest rate unusually sharply by half a percentage point to 1.75 percent. Fueled by skyrocketing energy costs and supply chain issues, UK inflation is already at 9.4 percent.

Inflation could rise to 13 percent

And inflation is likely to increase further. "The Bank of England expects the inflation rate to shoot up to over 13 percent in the final quarter as a result of the foreseeable price adjustments by British energy suppliers," says economist Dirk Chlench from Landesbank Baden-Württemberg (LBBW). That's why experts like Chlench also expect that the economy will shrink even more significantly towards the end of the year.

In order to compensate for the high inflation, many Britons have already spent less in recent months. From March to May, store sales fell, according to the British Retail Association. However, Britons spent more money on summer clothes and air conditioning during the historic July heatwave. According to the British Retail Consortium, the total turnover of the association members – mainly large chains and supermarkets – grew by 2.3 percent compared to the same month last year.

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