UK back on recession watch in wake of the Budget

Commenting on today’s GDP figures showing that UK economy shrunk by 0.1% in October, Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said:
“The second successive monthly fall in economic activity in October should put the UK firmly on recession watch. Indeed, output per head may already be falling for the second quarter in a row.
“The loss of momentum is not contained to the UK. Indeed, the manufacturing sector appears to be struggling even more in the rest of Europe, notably Germany and France.
“Nonetheless, the new government’s negative rhetoric over the summer and the anticipation of a tight Budget have damaged sentiment and encouraged many households and business to put spending, hiring and investment on hold.
“One of the few sectors to do well in October was legal services, suggesting that the Budget was at least good news for tax lawyers.
“The Budget itself was even tougher than expected. The large increases in spending, taxation and borrowing were bound to increase uncertainty. It is simply not possible to shift two per cent of national income from the private to the public sectors without disrupting the economy, especially given the gap in productivity between the two.
“There are some glimmers of light. The latest GfK survey suggests that consumer confidence actually improved in December, with sentiment on the outlook for personal finances turning positive again. Real incomes are still likely to recover further and unemployment is still low.
“But surveys of business confidence suggest that firms remain gloomy, even before the main increases in tax and other costs in the Budget kick in next April.
“The Bank of England’s staff forecast of 0.3 per cent growth in the fourth quarter is looking even more optimistic. Zero now seems more realistic. At some point, the Monetary Policy Committee will shift to worrying much more about the downside risks to growth and inflation – perhaps not next week, but soon.”