The U.K.’s economy showed no growth in this year’s third quarter from the second, “entering what is expected to be a protracted period of stagnation on the cusp of a recession,” The New York Times reported.
GDP eked out a 0.2-percent increase in the second quarter.
The British economy will avoid a recession by growing 0.1 percent in this quarter and then flatlining through early 2025, the Bank of England (BoE) has predicted.
The economy is being hammered by the BoE’s 5.25-percent base interest rate, the highest since late 2008. The steady rise in interest rates have shown less than half their ultimate effect across the economy, the BoE said.
The BoE chose not to increase its rate at its most recent meeting, despite inflation in the U.K. running at 6.7 percent in October. However, interest rates will not decline in the near future, the bank said.
About five million people in low-income households will not see their living standards return to pre-COVID levels until 2026, the National Institute of Economic and Social Research (NIESR) has estimated.
The government of prime minister Rishi Sunak is expected to wait until closer to a general election to offer stimulus measures. Under law, the election must be held by January 2025.
Sunak has promised to halve inflation during his first term in office. However, any stimulus program will raise the budget deficit and national debt, anathema to Sunak’s Tory party.
The NIESR and others are urging the government to enact a major stimulus package immediately, especially focusing on housing and infrastructure.
TREND FORECAST: The combination of continued inflation and continued high interest rates amid a sluggish global economy make it likely that the U.K. will topple into a recession in 2024.
Once the recession strikes, Sunak’s government will unleash a stimulus program if it has not done so earlier. The program’s late arrival is likely to make the recession longer and deeper than it otherwise would be.