The UK economy in February as a strike and inflation - and the IMF provides a reality check

LONDON – The UK economy was flat in February as widespread industrial action and persistently high inflation spurred activity.

Data on Thursday showed flat domestic production in February, missing the consensus of 0.1% growth. Both the services and manufacturing sectors contracted, boosted in part by a record 2.4% increase in construction.

This follows a revised 0.4% GDP expansion in January, which means output grew by 0.1% in the three months to the end of February.

In recent months, there have been widespread strikes by teachers, doctors, civil servants and railway workers, among others – members of the sector who accounted for the largest share of the fall in service output in February.

“There was anecdotal evidence reported in the monthly business survey to suggest that industrial action had a significant impact on different industries to varying degrees in February 2023,” the Office for National Statistics said on Thursday.

“These include the health sector (nurses and ambulance services), the civil service, the education sector (teachers and university lecturers) and the rail network.”

UK Foreign Secretary Jeremy Hunt poses with his Treasury colleagues outside 11 Downing Street in London, UK as they hold the letterbox…

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In response to this figure, British finance minister Jeremy Hunt said the country’s outlook is brighter than expected, and thanks to the measures we have taken, England is ready to avoid recession, many news outlets reported.

Independent The Office for Fiscal Responsibility does not protect the UK economy. In the year To enter a technical recession in 2023 – defined as two consecutive fourth contracts. The country’s fiscal position has been boosted by falling gas prices.

This allowed Hunt to act. He will announce additional fiscal support in the spring budgetThe Bank of England expects GDP to grow by 0.3% in the coming years, even as Britain’s tax burden remains at a 70-year high.

Fears that recession could ‘haunt the UK for some time’

Economists generally do not share Hunt’s bullishness, especially as The central bank continues to raise interest rates sharply. To control the persistently sky-high inflation Unexpectedly, it jumped to an annual 10.4% in February.

Suren Thiru, director of economics at ICAEW, said Thursday’s GDP figures were “high inflation and unemployment, dragging down key drivers of UK GDP, particularly services and industrial products, as the economy lost momentum.”

Thiru added: “Fears of a recession could hold the UK back for some time as revenue from deflationary and lower energy bills is offset by significant tax increases and a delay in interest rates.”

Charles Hepworth, investment director at GAM Investments, said Hunt’s contention that the economic outlook was brighter was “absolutely unbelievable” given the circumstances.

“Industrial strike action was the main cause of the slowdown in growth in the UK during the month. March was impressive and April was flat, so we continue to see depression on any growth,” he said.

LONDON, ENGLAND – JANUARY 16: Protesters from various trade unions are seen outside Downing Street on January 16, 2023 in London, England, as they attend a demonstration against the UK government’s ability to limit the ability of civil servants to strike. (Photo by Guy Smallman/Getty Images)

Guy Smallman | Getty Images News | Getty Images

Barrett Kupelian, senior economist at PwC, said the spread of strikes across major sectors of the economy meant the UK “could see a start-stop picture going forward”, consistent with month-on-month fluctuations. Result.

“The big picture story is that today’s release, combined with revisions to economic activity, will bring the three-month growth rate to 0.1%,” Kupelian said. “The economy continues to slow, with economic activity struggling to grow at pre-pandemic levels.”

The UK has recovered to its pre-Covid productivity levels, the ONS confirmed, making it the last major economy to do so. Economists have cited several exceptions to this slowness, such as the following Brexit-related business losses And High economic activity due to the spread of chronic illness.

As inflation continues to outpace wage growth, most of the population is caught in a cost-of-living crisis.

With real incomes still falling, households facing higher tax bills this year and interest rates rising further, it’s hard to see where any meaningful recovery in growth will come from, and the stagnant picture looks very likely to be the norm for the foreseeable future, according to Stuart Cole, chief macroeconomist at Equity Today. feel like.

The bottom of the G-20 table

In its World Economic Outlook published on Tuesday, the International Monetary Fund predicted UK gross domestic product would shrink by 0.3% in 2023, underperforming the G-20 (Group of Twenty), which includes belligerent Russia.

The British economy is expected to fall below Hunt’s two main fiscal rules – the public debt burden will fall and the borrowing rate will remain below 3% over the next five years.

The IMF has offered a more medium-term outlook than previously estimated and now sees annual GDP growth of 1% in 2024, rising to 1.5% in 2028 – although this is below the OBR forecast that wrote Hunt’s budget commitment.

See CNBC's full interview with UK Finance Minister Jeremy Hunt

The IMF predicts the budget deficit will reach 3.7% of GDP in 2028, just 1.7% from the OBR’s forecast.

Responding to Tuesday’s IMF forecast, Hunt highlighted that the UK’s growth forecasts were “more improved than the rest of the G-7 countries”.

“The IMF said that we are now on the right track for economic growth. By following the plan, we will reduce inflation by more than half this year and ease the pressure on everyone,” he added.

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