Recession fears mount as GDP falls 0.3% in August

The ONS says there has been a "continued slowing in the underlying three-month on three-month growth", where GDP also fell by 0.3% in the three months to August compared with the three months to May 2022.

Production fell by 1.8% in August and was the main contributor to the fall in GDP; this fall was mainly because of a decrease of 1.6% in manufacturing.

Debapratim De, senior economist at Deloitte, said: “August's contraction in GDP reflects a growing squeeze on manufacturing activity, with high inflation and a general weakening of domestic and overseas demand leading to sharp reductions in new orders for manufacturers.

“As inflation peaks and temperatures fall further in the coming months, we expect this weakness to spread to the service sector, driving the UK economy into a recession.”

George Lagarias, chief economist at Mazars, commented: "The global economic slowdown can’t leave an open economy like the UK unscathed. We believe that we are at the beginning of the recession cycle, not the end. Economic activity may well remain lacklustre well into the next year and could be further exacerbated if the Bank of England hikes rates too aggressively to defend the Pound."

Richard Pike, chief sales and marketing officer at Phoebus Software, added: “August already seems a long time ago and these figures really don’t represent anything that has happened in the last few weeks since the new government took control. However, the doom that the Bank of England was spreading regarding the country being in recession already has at least proved unfounded, so far. With the IMF cutting global GDP forecasts, the fact that our GDP estimate is down 0.3% in August following growth (albeit revised down) in July puts Britain in line with global predictions.

“That said, the events that have unfolded in the last few weeks are sure to show themselves in upcoming data sets as the country finds its feet under the new regime and figures out exactly what this government is trying to do. Something that we should find out when the Chancellor delivers his ‘fiscal clarity’ statement on the 31st. For the mortgage market the prediction that interest rates are likely to increase by up to one per cent in the next MPC meeting, is going to put more pressure on lenders and borrowers. Mainstream banks are in a better position than smaller lenders and we have already seen the number of available mortgage products halve in two weeks. Unfortunately, although the affordability buffer was set at 3% the rising cost of a mortgage is only part of increasing costs at the moment. Lenders were never asked to predict how much inflation would rise if interest rates went up. Now they have to look at affordability from a much more holistic angle to assess the risk.

“House prices have already started to come down, and you will never take away the desire to own a home in the UK, so it now depends on how much prices fall in comparison to how much everything else goes up. There is always appetite somewhere, and one positive to come from today’s estimate is that new work in construction increased. Brokers will also come into their own with so many remortgage opportunities in the coming months.”