On March 10th, the UK is set to release its growth numbers for January. The forecasts from economists and researchers of three major banks are looked at below regarding the upcoming Gross Domestic Product (GDP) data.
The UK economy is expected to show an increase of 0.1% month-on-month, compared to the -0.5% decline in December.
ING, one of the most recognised banks in the world, states that although the UK economy took a sharp hit in December, there will probably only have been a partial rebound in January. These figures, which are released monthly, have been tricky to monitor due to the distortions surrounding both the Queen’s funeral, which took place last September, and the World Cup, which caused problems with the consumer services activity. The December plummet means that the economy is likely to register an overall first-quarter GDP decline, which is predicted to fall by 0.2% based on current forecasts.
The trend currently in the UK appears to be one of very gradual contraction, perhaps due in part to a continual downtrend in retail spending. There is an expectation of a technical recession in the UK in the first half of 2020, one that is not expected to have significant impacts. Wholesale gas prices are expected to reduce bills by the summer, limiting further consumer spending damage.
SocGen predicts a minor fall of 0.1% in services output. Manufacturing output, on the other hand, should have been roughly flat, but their expectations are that the milder-than-usual winter weather will have reduced energy output, resulting in a 0.2% fall in overall industrial production. Construction output is predicted to have been flat. Taking all of these into account, they have forecast a 0.1% fall in both MoM and 3m/3m GDP growth.
Credit Suisse also predicts a MoM fall in GDP by 0.2% in January.
The potential impact of the Coronavirus has not yet been measured. Yesterday, Bank of England Governor, Mark Carney, advised the public that the economic hit of this virus is set to be larger than the 2008 financial crisis. Despite this, the Bank of England decided against making an emergency interest rate cut in today’s policy meeting, which has further heightened concerns about the effects of the virus.
In recent years, the UK’s GDP numbers have fluctuated immensely. Since the Brexit vote in 2016, impending challenges have arisen, and significant concerns about reaching a deal. The UK economy has been growing increasingly slowly in the past year, given political uncertainty and weaknesses in global demand. As Britain had been struggling with what is called “Brexit drag” for a few years, a stable platform was hoping to be achieved as the UK ultimately leaves the EU at the end of the year, but the impact of the coronavirus puts this into a whole new light.
The budget due next Wednesday, on March 11th, is anticipated to provide a snapshot of the government’s financial priorities for the coming year, and given the importance of the timing, is expected to include several measures designed to help boost the UK economy.
If the forecasts hit the mark, then the UK economy is on a very slippery slope. The country may find itself in a technical recession before the end of June, and the impacts of the coronavirus are currently unknown but could magnify the situation further. The UK Government needs to act decisively to stabilise the economic situation, although it remains to be seen if that will happen. The GDP data released on March 10th is not merely reflecting what happened at the beginning of the year, rather; it will provide a crucial guide to how policymakers should respond to the challenges ahead.