Sluggish Growth: UK Economy Falters as Real Estate Wanes
UK economy records weakest quarterly performance in a year, with real estate sector dragging down growth due to high interest rates
Britain's economy experienced its slowest performance in a year during the third quarter due to a decline in activity within the real estate sector, attributed to high interest rates. According to the Office for National Statistics (ONS), there was no growth in output between July and September compared to the previous quarter. The main contributing factor to this stagnation was a 0.1% decrease in the services sector, which makes up the majority of the UK economy.
The most recent reading shows a decrease in gross domestic product compared to a 0.2% growth in the second quarter. Analysts suggest that the data indicates how the economy is being constrained by the 14 consecutive interest rate hikes implemented by the Bank of England since late 2021.
The real estate sector, which contributes to 13% of the UK's economic output and is particularly vulnerable to increased borrowing costs, has experienced a decline this year. In the latest quarter, activity decreased by 0.4%. Moreover, Halifax, a significant mortgage lender, recently reported a 3.2% decrease in average residential property prices in October compared to the same month in 2022.
A person pushes a child in a stroller in a new housing development in Fairfax, Virginia, on August 22, 2023.
Andrew Caballero-Reynolds/AFP/Getty Images
Mortgage rates climb higher, edging closer to 8%
According to Paul Dales, chief UK economist at Capital Economics, the GDP data "suggests that the drag from higher interest rates is growing."
"In terms of semantics, it remains uncertain whether the economy is in recession, but our confidence suggests that it will continue to be restrained for a considerable period," he noted.
According to the Bank of England, there is a projected increase of 0.5% in the overall GDP for this year, with minimal growth expected in 2024.
The productivity figures released on Thursday by ONS depict an economy that is stagnant and performing poorly. The data reveals that there has been minimal improvement in UK productivity since 2007. In the long run, increasing productivity is essential for achieving higher living standards. James Smith, the research director at Resolution Foundation, expressed his views on the matter, stating that Britain has been unable to achieve consistent economic growth since the financial crisis.
UK finance minister Jeremy Hunt is due to outline the governments plans to boost economic growth later this month.
