Next week’s economics: 26 – 30 September

Recession-watch intensifies next week with the release of third-quarter UK GDP data. According to an often-used rule of thumb, an economy enters recession after two consecutive quarters of negative growth. The UK economy shrunk by 0.1 per cent in the second quarter, meaning the stakes are high for September’s release.

In August, the BoE forecast that the UK would enter a sustained recession from Q4 – but this was before new prime minister Liz Truss announced a huge fiscal stimulus package. Debate rages about whether the new policies will see the UK avoid a protracted recession. But they have come too late to change Q3 statistics: Berenberg’s Dr Salomon Fiedler argues that “the UK economy is likely already in a recession that we expect to last until spring 2023”.

The Bank of England’s Money and Credit report on Friday will give us a sense of the impact of the gloomy economic climate on consumer spending patterns. Last month’s figures saw households saving less and borrowing more in an effort to maintain their levels of expenditure. Credit card borrowing, in particular, looks set to rise further this month, while mortgage approvals may start to show evidence of housing market jitters.

The US will also release GDP statistics on 29 September. By the ‘two quarters rule’, the US is already in recession: GDP fell by 1.6 per cent in Q1, and 0.6 per cent in Q2 this year. But things are complicated by the fact that the US has its own definition of a ‘true’ recession. This is determined by the National Bureau of Economic Research and based on an examination of a broad range of macroeconomic indicators. Particular emphasis is placed on employment and personal income figures. We will have to wait two weeks for a labor market update, but personal income data is out on 30 September. The US may yet avoid a ‘true recession’: Andrew Hunter, senior US economist at Capital Economics expects a period of below-trend growth for the US, rather than an outright contraction.

The Eurozone outlook is more negative. Oxford Economics expects soaring gas and electricity prices to hit consumer spending, incomes, and industrial activity, triggering economic stagnation in 2023. Euro area unemployment hit a record low of 6.6 per cent last month, but inflation remains extremely elevated at close to 9 per cent. . Updated labor market and inflation figures next week will give a clearer picture of the storm clouds gathering.

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