UK is not in recession as pandemic savings help

UK house price growth stalled month-on-month in September, for the first time since summer 2021. PA

The UK is not in recession, according to official figures, which showed the economy grew slightly over the second quarter.

The Office of National Statistics said Gross Domestic Product grew by 0.2 per cent over the three months to June.

It previously estimated the economy shrank by 0.1 per cent in the period.

Based on this guidance, the Bank of England suggested the UK was likely to currently be in recession as it forecast another decline, of 0.2 per cent, for the three months to September, in its Monetary Policy Committee meeting earlier this month.

A recession is defined by two consecutive quarters of decline.

So even if the economy declines, as predicted this quarter, it will still not meet the technical definition.

The economy has been thrown into turmoil over the past week by the new chancellor’s mini budget, which represented the country’s biggest tax cuts in 50 years, abolishing the top rate of tax, among other changes.

The pound plummeted, falling to its lowest-ever level against the dollar, while the FTSE tumbled, and the Bank of England was forced to step in to save the pensions system from crashing.

Base interest rates are now predicted to treble between now and next year, rising to more than 6 per cent.

The ONS said the growth in the second quarter was driven by improvements for the health and financial sectors.

ONS chief economist Grant Fitzner said: "These improved figures show the economy grew in the second quarter, revised up from a small fall.

"They also show that, while household savings fell back in the most recent quarter, households saved more than we previously estimated during and after the pandemic."

However, the new figures showed that despite growth in the latest quarter, the economy as a whole is smaller than previously predicted.

Economists said they believe overall GDP is now 0.2 per cent below pre-pandemic levels, having previously said they thought it was 0.6 per cent bigger than before Covid-19 struck.

"Overall, these new figures show that the economy was slightly smaller than our previous estimate, and in the second quarter was a little below its level when the pandemic struck, as the economy shrank more than we first estimated during the early months of the pandemic but rebounded more strongly in the latter half of 2021," said Mr Fitzner.

Meanwhile, house price growth stalled stalled month-on-month in September, but property values were still 9.5 per cent higher than a year earlier, according to an index.

Property values recorded 0.0 per cent growth month-on-month, following a 0.7 per cent monthly increase in August. That makes September the first month to not record a sequential rise since July 2021.

Robert Gardner, Nationwide's chief economist, said: "In September, annual house price growth slowed to single digits for the first time since October last year, although, at 9.5 per cent, the pace of increase remained robust.

"Prices were unchanged over the month from August, after taking account of seasonal effects. This is the first month not to record a sequential rise since July 2021.

Chancellor of the Exchequer Kwasi Kwarteng's mini-budget included stamp duty cuts. Reuters

"There have been further signs of a slowdown in the market over the past month, with the number of mortgages approved for house purchase remaining below pre-pandemic levels and surveyors reporting a decline in new buyer inquiries.

"Nevertheless, the slowdown to date has been modest and, combined with a shortage of stock on the market, this has meant that price growth has remained firm."

The mini-budget included cuts to stamp duty.

But many mortgages have been pulled in recent days and some provides have been repricing them ahead of the predicted interest rate rises.

Defaqto, a financial comparison website, said almost 3,000 mortgage products have been withdrawn from the market this week. And more than 20 providers have withdrawn their entire fixed-rate mortgage rates.

Mr Gardner said: "By lowering transaction costs, the reduction in stamp duty may provide some support to activity and prices, as will the strength of the labour market, assuming it persists, with the unemployment rate at its lowest level since the early 1970s.

"However, headwinds are growing stronger suggesting the market will slow further in the months ahead. High inflation is exerting significant pressure on household budgets with consumer confidence declining to all-time lows.

"Housing affordability is becoming more stretched.

"Deposit requirements remain a major barrier, with a 10 per cent deposit on a typical first-time buyer property equivalent to almost 60 per cent of annual gross earnings - an all-time high.

"Moreover, the significant increase in prices in recent years, together with the significant increase in mortgage rates since the start of the year, have pushed the typical mortgage payment as a share of take-home pay well above the long-run average."