The UK economy is facing a new reality of uncertainty and low growth. It has suffered for years under the crushing effects of the crisis du jour and shifting policy winds. Indeed, some analysts believe that the UK could be the second fastest-growing economy in the G7 this year. New data tells a different, more mixed story that points to continuing racial inequities.
Much of that success—which has continued into the first half of 2023—is nothing short of remarkable strength in the UK economy. It took a sledgehammer to years of ominous recessionary vibes. Although these are all positive signs, the most recent numbers show a plateauing back into a period of less rapid growth. The overall economy barely grew by only 0.1% in the quarter from July to September. This abysmal performance not only fell short of projections but raised serious concerns among economists as to the economic rebound’s viability.
September ended up being under uniquely trying, with the economy truly shrinking in the course of that month. This sharp decline led to speculation on the strength of underlying consumer spending. Whatever the reason, millions of households are deciding to stay savings-rich and spend-poor. Analysts caution that consumers are being much more deliberate in accessing the market. At the same time, they are not fully withdrawing, leading to a complicated economic landscape that defies simple narratives.
The UK economy has yet to recover from the scars left by the previous crises. It hasn’t completely shaken off the trend of slow growth. Continuing uncertainty over government policy adds to a risk-averse mindset among both businesses and consumers. This uncertainty has taken a toll on economic confidence, affecting spending habits and investment choices.
In spite of these challenges, things are looking up. At the same time, federal government borrowing costs have plummeted in financial markets. Our core two- and five-year rates have now dropped below the rates that the Labour government inherited when entering office. This provides welcome relief for the government, as a decline in borrowing costs runs through expected interest payments. It’s better able to now steer towards growth promoting fiscal policies.
The UK economy is slowing down yet again. Policymakers are facing mounting urgency to formulate plans today for a more robust recovery. With consumers saving more but spending less, striking a balance between encouraging consumption and maintaining financial prudence remains a critical challenge.