The UK economy shrank by 0.3% in August, the latest data from the Office for National Statistics (ONS).
As such monthly GDP is now estimated to be at the same level as pre-coronavirus levels in February 2020.
The contraction follows growth of 0.1% in July. Production fell by 1.8% in August after a fall of 1.1% in July and was the main contributor to the fall in GDP; this fall was mainly because of a decrease of 1.6% in manufacturing.
Construction was up by 0.4% in August, after growth of 0.1% in July 2022. The increase in monthly construction output in August came solely from a 1.9% increase in new work, as repair and maintenance saw a decrease of 2.0% on the month.
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Richard Pike, Phoebus Software chief sales and marketing officer:
“August already seems a long time ago and these figures really don’t represent anything that has happened in the last few weeks since the new government took control.
“However, the doom that the Bank of England was spreading regarding the country being in recession already has at least proved unfounded, so far. With the IMF cutting global GDP forecasts, the fact that our GDP estimate is down 0.3% in August following growth (albeit revised down) in July puts Britain in line with global predictions.
“That said, the events that have unfolded in the last few weeks are sure to show themselves in upcoming data sets as the country finds its feet under the new regime and figures out exactly what this government is trying to do. Something that we should find out when the Chancellor delivers his ‘fiscal clarity’ statement on the 31st.
“For the mortgage market the prediction that interest rates are likely to increase by up to 1% in the next MPC meeting, is going to put more pressure on lenders and borrowers. Mainstream banks are in a better position than smaller lenders and we have already seen the number of available mortgage products halve in two weeks.
“Unfortunately, although the affordability buffer was set at 3% the rising cost of a mortgage is only part of increasing costs at the moment. Lenders were never asked to predict how much inflation would rise if interest rates went up. Now they have to look at affordability from a much more holistic angle to assess the risk.
“House prices have already started to come down, and you will never take away the desire to own a home in the UK, so it now depends on how much prices fall in comparison to how much everything else goes up.
“There is always appetite somewhere, and one positive to come from today’s estimate is that new work in construction increased. Brokers will also come into their own with so many remortgage opportunities in the coming months.”
Riz Malik, director of Southend-on-Sea-based R3 Mortgages:
“Since the mini-Budget, I have gone from being confident about the outlook of UK Plc to being extremely worried. I keep on thinking I am in an episode of Dallas where tomorrow I will wake up, find Boris in the shower, and realise the past few weeks have been an exceptionally bad dream.”
Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton:
“It currently feels like we’re on the Titanic. Some sectors, like Leonardo DiCaprio’s character Jack, are in steerage, while others, for now at least, are in first class, doing exceptionally well.
“However, it feels like everyone aboard UK plc is about to sink to the depths, due to the iceberg that is sky-high inflation, the energy crisis and sharply rising mortgage payments. Unfortunately, the captain, our Chancellor, seems totally oblivious to the obvious danger ahead.”
Mark Robinson, managing director of Southampton-based Albion Forest Mortgages:
“I feel like our country’s economy is balancing on a knife edge, and unfortunately we have the equivalent of Mr Bean wielding the knife.
“I am confident that the British people will get through this together, but our government has shown that they don’t know what they are doing and are completely out of touch.
“If the Government doesn’t get a handle on things, it isn’t just borrowers who will suffer with rising rates. Mortgage brokers, estate agents, solicitors, builders, letting agents, developers, surveyors, and many many more sectors will struggle.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“I feel about the same as a turkey does at this time of year. We’ve got soaring mortgage rates that won’t come down anytime soon. We’ve got a doubling of energy unit prices from last year, the Bank of England about to hike rates even further and a possible house price dip.
“This after two years of COVID, a war in Europe that has no signs of abating and a cost of living crisis that is the worst for a generation.
“To top it all off, we’ve now got the lunatics running the asylum. If I could have a minute with the PM and Chancellor, I’d very gently and calmly ask them to put the keys to No 10 and 11 on the table and ask them to hand them over to the nearest adult.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:
“It seems to be one thing after the other. We were all talking about how high energy bills were and how damaging they were to the economy, and now we are talking about the cost of borrowing.
“Unlike personal borrowing, businesses usually pay a flexible rate of interest on credit that is linked to the Bank of England base rate. We all expect that to go up significantly in November to add to the rises we have already seen this year. It’s going to hurt, big time.
“I am pleased that the fiscal statement has been brought forward, but the OBR should be able to release their forecasts, that they say they have, now. A U-turn on the additional tax rate isn’t going to be enough to satisfy the markets that the Tories are still fiscally responsible.
“There needs to be more give in the fiscal statement that will be realised on Halloween, of all days. If there is some movement, hopefully the Bank of England’s decision on interest rates three days later, won’t need to be so frightening.”
