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Right this moment’s UK Q3 GDP report is anticipated to “spotlight starkly the foolhardiness” of what’s prone to come from the Chancellor of the Exchequer subsequent week, says Michael Hewson of CMC Markets.
As he factors out, tax rises and spending cuts may very well be counter-productive:
Right this moment’s numbers are anticipated to see a pointy contraction of -0.5%, with the outlook for This fall unlikely to be a lot better, and but subsequent week the UK authorities is ready to chop spending and lift taxes to plug what the OBR says is a fiscal black gap of £40bn or so, relying on various assumptions about rates of interest, inflation and development.
It’s actually a worrying quantity, however I’m unsure the measures subsequent week will do something to shut that hole. If something, they might make issues worse at a time when the economic system is slowing sharply.
Right this moment’s GDP report might sign the beginning of a deep and lengthy recession, fears Deutsche Financial institution UK economist Sanjay Raja.
He instructed purchasers earlier this week that UK GDP in all probability fell by 0.6% in July-September (Q3).
The drop in Q3 GDP displays continued weak point in family and enterprise confidence, larger inflation, and better rates of interest within the economic system, with family consumption contracting within the quarter, enterprise funding slowing, and authorities spending falling additional.
Raja added {that a} This fall recession can now not be dominated out, with the financial outlook weakening additional forward.
Headwinds to the UK economic system will nearly inevitably push the economic system into recession, with world development slowing, confidence deteriorating, and persistently excessive inflation and rising rates of interest squeezing disposable incomes additional.
Introduction: UK GDP report might present recession looming
Good morning, and welcome to our rolling protection of enterprise, the monetary markets and the world economic system.
This morning we study if the UK economic system is heading into recession, when the primary estimate of GDP for the final quarter is launched at 7am.
Economists predict that the economic system contracted within the July-September quarter, with exercise falling by round 0.5%, as companies and households battle with rising inflation and better borrowing prices.
The surge in UK power payments this yr has hammered disposable incomes, leaving households with much less to spend on different items and companies, and in addition squeezed businsses.
A technical recession is outlined as two quarters of contraction in a row, so this could put the UK on the point of what could be a painful recession. The Financial institution of England warned final week that the UK might fall into the longest downturn in a century.
It’s nearly inevitable the economic system shrank within the third quarter, explains Alvin Tan of RBC Capital Markets:
To keep away from Q3 GDP contracting for the third quarter as a complete, September month-to-month GDP would wish to rise by round 1.2% m/m.
That appears extremely unlikely given September’s additional financial institution vacation for Queen Elizabeth’s funeral, and we count on September GDP to fall 1% m/m, which would go away Q3 GDP displaying a contraction of 0.7% q/q in our estimate.
Such a fall would solid a darkish shadow over Jeremy Hunt’s autumn assertion subsequent Thursday, when the chancellor is anticipated to announce tens of billions of kilos of robust spending cuts and tax rises.
Elsewhere at this time, monetary markets persevering with to rally after inflation within the US slowed final month. That information that triggered the most effective rally on Wall Avenue in over two years final evening, sending the pound leaping to $1.17.
Japan’s Nikkei index has closed at a two-month excessive, whereas copper – a bellwether of financial prospects – has jumped 3% this morning to a close to five-month excessive.
The agenda
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7am GMT: UK GDP report for the third quarter of 2022
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7am GMT: UK commerce report for September
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7am GMT: Germany’s October inflation report
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8.30am GMT: Hong Kong’s Q3 GDP report
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1pm GMT: NIESR publishes its month-to-month UK GDP tracker for October
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3pm GMT: College of Michigan’s US client sentiment survey for November