The British economy returned to growth in November, with GDP increasing by 0.1%, according to the Office for National Statistics. However, despite this slight uptick in economic activity, experts warn that the UK is still at risk of entering a technical recession.
A technical recession is defined as two consecutive quarters of negative economic growth, and with the UK economy contracting by 0.5% in the second quarter of 2021, and by 0.1% in the third quarter, it is clear that the country is walking a tightrope when it comes to a potential recession.
The key driver behind the November growth was the reopening of businesses and the easing of lockdown restrictions, which led to a surge in consumer spending and economic activity. However, with the threat of the Omicron variant looming and the potential for further lockdown measures, there is a real risk that the UK’s economic recovery could be short-lived.
Furthermore, rising inflation and supply chain issues are also threatening to stifle economic growth. Inflation is at a 10-year high, driven by increasing energy prices and supply chain disruptions, which are pushing up the cost of goods and services for consumers. This, in turn, could lead to a reduction in consumer spending and a slowdown in economic activity.
The housing market is also showing signs of weakness, with mortgage approvals falling to their lowest level in 18 months in November. This is a concerning indicator, as the housing market is often seen as a bellwether for the wider economy.
The ongoing uncertainty around Brexit and the lack of a trade deal with the EU is also a factor that could further hamper economic growth in the UK. The trade deal that was agreed upon in December 2020 did little to alleviate the burdens on businesses and the uncertainty surrounding the future trade relationship between the UK and the EU continues to weigh on the economy.
Overall, while the return to growth in November is a positive sign for the UK economy, the risks of a technical recession loom large. The Omicron variant, inflation, supply chain issues, and Brexit uncertainties all pose significant threats to the country’s economic recovery. It is essential for policymakers and businesses to remain vigilant and agile in the face of these challenges to ensure that the UK can overcome these headwinds and sustain its economic growth in the coming months.