- In the UK, there are many indicators that point to the weakening of the economy.
- The contraction of the economy was mainly caused by a weaker global economy and higher inflation.
- The gross domestic product figures also showed that industrial production fell by three percent, and the services trade contracted by two percent.
The United Kingdom’s Office for National Statistics announced that last year’s gross domestic product (GDP) contracted by 9.9%, the biggest decline in recent records. In the fourth quarter of last year alone, it recorded a quarter-on-quarter growth of 1% to avoid falling into a technical recession again.
In December last year, GDP grew by 1.2% month-on-month. In the UK, there are many indicators that point to the weakening of the economy. The contraction of the economy was mainly caused by a weaker global economy and higher inflation.
The quarterly gross domestic product figures released by the British government showed that the economy contracted for the third consecutive quarter, registering a growth of only one percent year on year.
The gross domestic product figures also showed that industrial production fell by three percent, and the services trade contracted by two percent.
“The tighter restrictions imposed towards the end of last year, which are likely to remain in place for much of the current quarter, suggest that the economy may shrink again,” said Dean Turner, economist at UBS Global Wealth Management.
“However, what is clear from the data is the resilience and adaptability of firms and households, so any contraction will be modest. As and when restrictions are eased, we continue to expect a vigorous rebound in the economy.”
The services sector, which includes non-operational health care, professional services, and support services, is the largest single component of the UK economy. As well as seeing a slowdown, services indicators are expected to continue to fall.
It is one of the few areas of the economy that is now likely to be able to weather the storm of recession and sluggishness that is being predicted. The slowdown in the services sector may see the need for increased investment in order to keep pace with demand.
The weakening of the economy as a whole has led many economists to predict that the economy will contract once again this year.
Inflation has been a major constraint on household budgets, and rising food and fuel costs have made it difficult for families to keep up with the latest spending patterns. In addition, higher borrowing costs have forced businesses to tighten their belts, cutting back on expenses and staff. The weakening of the UK economy will have a major impact on the global economy.
Consumer spending is the backbone of any healthy economy, and the decline in consumer spending has been felt in every area of the UK. Consumer spending represented about three-quarters of the UK’s total economic growth, and a contraction of that essential economic pillar of growth would have a serious adverse effect on the economy.
Consumer debt is now at an all-time high, with credit cards having a significant impact on household finances. A slowdown in the UK economy could see households take out further loans to pay off existing debts, which will only exacerbate the situation.
“However, 2020 is in the past and the U.K. arguably has a promising second half of the year ahead given the success of the vaccine rollout,” said Hitesh Patel, portfolio manager at Quilter Investors.
“This could easily be derailed should one of the mutations prevent the vaccines properly taking effect, but for now a double-dip recession has been avoided, and soon lockdowns may potentially be the thing of the past.”
There are also predictions that the UK economy will suffer from a loss of competitiveness in services.
Low wages and high unemployment levels mean that companies in the consumer goods and services sector will be forced to cut back on jobs and production as a result of consumer spending cuts.
In turn, companies reliant on consumer spending will not be able to increase their sales as much as they would like.
As the consumer spending cuts continue and unemployment and inflation rise, it is likely that consumers, businesses, and lenders in the U.K. will be watching the UK economy closely.
Consumer spending accounts for roughly three-quarters of UK gross domestic product. If consumer spending cuts continue without alternative measures, the consumer will suffer a recession.
The UK economy is currently recovering from the global credit crunch and consumer spending cuts, although they are temporary, could see the economy to contract further.