The UK economy had zero growth in the three months to September but avoided falling into recession, the latest figures from the Office for National Statistics have shown. The question is, with the effect of previous interest rate hikes still to be felt, where will the Bank of England next take rates?
The data, which came in slightly higher than the 0.1% contraction analysts had forecast, followed a 0.2% increase in the previous quarter.
The ONS said the services sector fell by 0.1% in the three months from July to September, which offset a 0.1% increase in construction output and broadly flat output in the production sector.
Danni Hewson, head of financial analysis at AJ Bell, said: “Despite strikes on the railways and by junior doctors, September did deliver a sliver of growth as this year’s Covid vaccine programme was rolled out and the unseasonably warm weather helped reinvigorate the ailing construction sector. But cost of living pressures are still strangling consumer facing services with retailers punished further by high temperatures and though summer’s last hurrah did tempt us to get out and about, budget constraints have hampered any chance of a post-pandemic recovery.
“Subdued is the word du jour. All sectors are struggling, there are no stars in this set of figures, no big boosts to offset falls elsewhere.”
The lack of growth will raise question marks over the Bank of England’s future rate direction, with the full impact of previous interest rate increases yet to be felt by some households and businesses that secured their debt in a much lower rate environment. Earlier this month, the Bank of England announced that it would hold the interest rate steady at 5.25%.
Lindsay James, investment strategist at Quilter Investors, commented: “While somehow avoiding a recession this year, today’s no growth reading means the UK economy is flatlining with only 0.2% economic growth in the last six months. Unfortunately, for many the economic pain has only been delayed. As the Bank of England stated earlier this month that more than half of the impact of higher interest rates on the level of GDP is still to come through, the UK economy faces growing headwinds as we approach 2024.
“And with 2024 very likely to be an election year, the timing couldn’t be worse for the government to be heading into what feels like a recessionary period.”
Rob Morgan, chief investment analyst at Charles Stanley, added: “Today’s data will be influential in the Bank of England December’s monetary policy outlook, and it most likely means a holding pattern for interest rates.
“While economic cracks are appearing, overall activity is holding up reasonably well, which means inflationary pressures may not abate quite as quickly as the Bank of England would like. The numbers aren’t strong enough to bring a further rate rise from the current 5.25% into play, but it will temper calls for earlier cuts a little too.”
