UK GDP Shrinks Unexpectedly, Recession Alarm Goes Off

In an unexpected turn, the UK’s GDP has shrunk by 0.3%. The monthly estimates revealed by the Office of National Statistics reveal an MoM change of -0.3% in August. The GDP was expected to be at 0% MoM change. The worse-than-expected GDP is increasing the fear of recession in the economy.

The GDP in the month of July showed a growth of 0.1%.

The production data also showed a negative decline of 1.6% while the manufacturing data showed a decline of 1.8%. These numbers will definitely increase the fears of a slowdown in the economy.

Why UK GDP Numbers Matter

The global economy is currently in an extremely fragile state. The central banks of major economies have engaged in interest rate hikes and quantitative tightening to curb inflation levels in the economy. For example, the US Federal Reserve has raised interest rates four consecutive times by an unusually large 75 bps. A fifth 75 bps hike is also extremely likely.

Similarly, the Bank of England also increased interest rates to curb the inflation level.

However, the hawkish stance of the central banks has posed a threat to global financial stability. The World Bank stated that the global economy can face a major recession in 2023. Similarly, the United Nations has warned the central banks to pivot. Major corporations such as FedEx have warned that the demand slowdown has accelerated.

The restrictive monetary policy has had other major drawbacks. The world’s richest man Elon Musk claims that the hawkish stance of the Fed will lead to deflation. Cathie Wood of Ark Invests has written an open letter to the Fed supporting Musk’s point of view.

Neel Kashkari, the President of the Minnesota Fed, admitted that the economic condition appears like stagflation.

Will There Be A Recession

The US economy has already witnessed two consecutive quarters of negative growth. This meets the technical criteria of a recession. However, the US administration has declined any possibility of a recession.