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Is the UK heading for a recession?

According to figures released in August, Britain’s economy contracted by 0.2% in the second quarter of 2019. If figures later this year show another contraction from July to September, the UK will officially be in a recession – but how likely is it that the UK is heading for a recession?

Uncertain economic outlook

There have been numerous and ever-louder warnings that the UK might enter a recession in the immediate aftermath of Brexit. Of course, we haven’t left yet, but the effects of prolonged business uncertainty and lack of investment are now being felt in many sectors of the economy, particularly in manufacturing. The ongoing political crisis over Brexit and the increasing likelihood of an early general election will only prolong the uncertainty.

The Bank of England and the government’s own analysis still points to a disorderly no-deal Brexit having a significant and negative short-term impact on both the UK and EU economies, with both likely tipping into a recession before the end of the year.

With the recent drop in the pound against the euro and dollar, consumers in the UK could see a few more pennies added at the petrol pumps over the coming weeks, not to mention added expense for holidaymakers heading abroad and looking to exchange their currency.

The mortgage market

The market has looked relatively stable over recent months with a recent survey showing 93% of intermediaries have a positive outlook for the industry, even in the face of such turbulence. The market rebounded in July with 95,126 mortgages approved in what is the highest monthly figure since 2009. However, it is possible that this rebound will be short-lived as consumers buckle up and wait for the latest Brexit deadline to resolve itself – one way or another.

House prices in the UK are continuing to rise across the board, although the pace continues to slow with many places seeing a decline in prices. London saw prices drop for the 16th consecutive month and southern England saw a decline for the first time since the 2008-09 recession.

The bigger picture

The global economy as a whole has been stagnating for over a year now, with China’s slowdown a particular cause for concern due to it accounting for a third of global growth. Additionally, the escalating trade war between the US and China and tension in the Gulf between Iran and the West is further hampering growth and damaging investor confidence.

Closer to home, Germany is on the brink of recession with a sharp decline in industrial output and Italy looks set to follow with zero growth and a mounting debt crisis, amid a time of rising tension among members of the Eurozone.

Can anything be done?

The Chancellor Sajid Javid looks set to announce an early budget to be held in September or early October which could include tax cuts or measures to help boost consumer spending, although it remains to be seen whether any of these could help. The treasury has also scrapped a planned 3-year spending review in favour of a 2020-21 budget to help government departments prepare for Brexit on 31 October.

Recently the Bank of England governor Mark Carney has indicated that the bank may consider moving interest rates downwards in a no-deal exit scenario, reducing the cost of borrowing for homeowners across the UK but also reversing recent gains for savers who continue to see dismal returns on their investments.

In any case, until business and investors regain confidence and the Brexit deadlock is broken in Westminster, it looks like the very real threat of recession will continue to loom large amid a decidedly gloomy economic picture not just for the UK, but the world as whole.

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