Economists have issued warnings of a potential UK recession as data reveals the economy is struggling under the weight of Rachel Reeves’s tax-raising Budget.
The UK is now teetering “close to stagnation” after November’s PMI figures showed private sector activity contracted for the first time in over a year.
The pound fell to its lowest level against the dollar since May, while banking stocks plunged on Friday. Economists expressed growing concerns that Britain’s economic performance could fall short of previous forecasts.
Chris Williamson, chief business economist at S&P Global Market Intelligence, stated: “Companies are clearly giving a ‘thumbs down’ to the policies announced in the Budget, particularly the planned rise in employers’ National Insurance contributions.”
Key developments included:
- Retail Sales: A larger-than-expected slump in October as Budget-related uncertainty curbed consumer spending.
Interest Rate Bets: Traders now anticipate at least three Bank of England rate cuts next year, up from predictions of two earlier in the week. - Bank Stocks: Financial institutions fell to the bottom of the FTSE 100 amid expectations of reduced rates.
- Bond Market: Yields dropped as traders rushed to buy government debt ahead of the projected rate cuts.
- While most economists stopped short of declaring a recession imminent, they acknowledged the increasing risks of economic contraction.
Paul Dales, chief UK economist at Capital Economics, commented:
“Our forecasts assume modest growth in Q4, improving further next year due to increased government spending announced in the Budget. However, I am now more concerned that growth may underperform our projections.
“At this stage, a contraction in Q4 would no longer be surprising. Any recession, though, is likely to be short and shallow, as the impact of higher interest rates appears to be fading.”
