Britain’s GDP shrank in the third quarter, marking the worst showing in a year, as the weight of high interest rates caused the real estate sector to contract. As the majority of the UK economy is composed of the services sector, the Office for National Statistics (ONS) said on Friday that the 0.1% decline in this sector was primarily responsible for the negative growth in production from July to September when compared to the previous quarter.
The most recent figure represents a deceleration from the second quarter’s 0.2% growth in the gross domestic product.
According to economists, the data suggests that the economy is being restrained by the Bank of England’s 14 consecutive interest rate hikes since late 2021.
This year has been tough for the real estate industry, which contributes 13% of the UK’s GDP and is especially vulnerable to rising borrowing prices. In the most recent quarter, activity decreased by 0.4%. Furthermore, Halifax, a significant mortgage lender, said earlier this week that the average residential property’s price decreased by 3.2% in October compared to the same month in 2022.
Paul Dales, chief UK economist at Capital Economics, said the GDP figure “indicates an increasing drag from higher interest rates.”
“Whether or not the economy is in recession is a matter of semantics, but we are reasonably confident that it will remain muted for some time to come,” he wrote in a note.
The Bank of England predicts that GDP will grow by 0.5% overall this year and almost nothing in 2024.
The ONS productivity figures, which were made public on Thursday, presented a similar image of a stagnant economy. The information, which gauges how well the economy uses capital and labor, revealed that UK productivity has hardly increased since 2007. In the long term, increased production is a need for increased living standards.
According to James Smith, research director at the think tank Resolution Foundation, “Britain is a stagnation nation that has struggled to secure sustained economic growth since the financial crisis,” in a note sent out on Friday.
Later this month, UK Finance Minister Jeremy Hunt is expected to present the government’s strategies to accelerate economic development.
Due to a fall in real estate activity, the UK economy saw its worst quarter in a year, marked by stagnation. The third-quarter economic performance of the nation reflects this decline. The decline in the real estate sector’s activity, which is highlighted as a crucial component of the economic slowdown, is one of the factors causing this predicament. High interest rates compound the effect and may have an influence on investment and consumer expenditure.
The economy consequently confronts difficulties akin to those of a “stagnation nation.” Concerns regarding the general health of the economy and its chances for growth have arisen as a result of the UK economy’s weakening, particularly in relation to real estate.