What's Slowing UK Growth: Recession or Temporary Lull?

CGTN Europe

CGTN Europe spoke to International Economist and Business Consultant Vicky Price.

Transcript

00:00Our international economist, Vicky Price. Hello, Vicky. Great to chat to you.

00:05What do you see as the main reason for the declining growth in October?

00:11If we remember what was going on at the time, it was before the budget, which was at the end of November,

00:16and there was a lot of speculation as to what was going to be in the budget,

00:19a lot of worries both from the consumer and also from business about what the contents of that budget might be,

00:25particularly tax increases, which were being suggested by various leaks that were going on at the time.

00:33So the newspapers were talking a lot about it. Businesses were worried.

00:37So the result was that there wasn't a huge amount of activity in the economy over that period,

00:43waiting really to see what the budget would contain.

00:46Of course, we had a little bit of clarity since, of course.

00:49Yeah. I mean, it's small movements. We saw a drop in growth in September, flat growth in August.

00:54I have to ask, does this mean the UK is heading for a recession?

00:59Well, I suspect that when you look at November, it won't have been a very good month either,

01:04because that was the month of the budget and it didn't happen until the very end.

01:07Then, of course, you've got December, which tends to affect people's spending habits quite considerably.

01:13There's a seasonal factor in there. People do spend a bit more.

01:16So we might just escape it.

01:18So though there may be another fall in November, what we might see is that perhaps it gets reversed a little bit in December.

01:23So we might escape it, because, of course, recession is two quarters of negative growth.

01:27So we didn't actually get negative growth in the summer months.

01:33So we are going to escape it technically.

01:35But whether we are escaping it in reality, because people are just not spending and businesses are not producing,

01:41then that's a big question mark.

01:43Let's talk about the bond market, because the cost of government borrowing has actually come down a bit.

01:48The bond market likes that Rachel Reeves has built in this fiscal buffer.

01:53So can we really blame her for what's going on?

01:57I think what's going on in the bond market is it's much more to do with expectations of interest rate cuts rather than what was in the budget,

02:03because there is quite a lot of questioning going on as to whether that buffer is sustainable,

02:08given that a lot of what was announced in the budget was much, a lot of spending early on in the first few years,

02:14and then a lot of back loaded tax increases.

02:18So they may not happen.

02:19So there's a big, big question mark.

02:21But the reality is that because of slower growth patterns that we have seen,

02:25the markets have decided, and also because there have been some inflation reducing measures in the budget,

02:31that the Bank of England is going to look at it all in a more benign way,

02:35and therefore they will cut rates possibly faster than would otherwise have been the case.

02:39So that's why the bond markets are reacting positively.

02:42I see.

02:42And that, of course, a cut will be good news for consumers,

02:46because the cost of borrowing gets that much cheaper.

02:49Overall, if you look at the UK economy, where are we going?

02:53Are you seeing a period of flat growth, or are you seeing it going potentially up or down in the next year?

02:58Well, the forecasts are for growth of over 1%, and that may indeed happen.

03:04I think the interest rates, rightly, as you say, are going to have a big impact on confidence.

03:10Mortgages for houses, businesses which are borrowing, all that should become considerably easier.

03:15People who are in debt, and there are loads of those,

03:18even though savings are very high as well in the UK.

03:21There may indeed, because of the cut in rates, be a willingness now to cut and spend some of those savings as well.

03:26So, yes, I think the expectation is there will be growth.

03:29How much there's going to be is questionable.

03:31There are already forecasts, following the data we just got on GDP growth,

03:35which are reducing, even for this year, what is expected,

03:40and also for 2026 to below what the OBR was forecasting, which was about growth of 1.2%.

03:47So let's see.

03:49Okay.

Category

Transcript

Be the first to comment

Recommended