Anniversary holiday hangover hits UK economy

Investors braced for another month of softening economic output as the anniversary holiday took its toll on June data

Upbeat: Tory leader Liz Truss says recession is ‘not inevitable’

Investors braced for another month of softening economic output as the anniversary holiday took its toll on June data.

Traders were given a brief respite from the gloomy mood in the UK last month as the economy appeared to have returned to growth in May after two months of contraction.

But as the Bureau of National Statistics prepares to release June figures on Friday, the clouds are likely to pull back down.

Economists polled by Reuters expect production to have contracted 1.3 percent, compared with 0.5 percent growth in the previous month.

While families may have enjoyed the extra day off offered by the Queen’s platinum jubilee, the pauses, in addition to the late May bank holiday being pushed back to early June, took their toll on the economy as businesses closed their doors.

With the Bank of England warning that the economy will plunge into recession from the fourth quarter of the year, this lackluster performance will put pressure on the next Prime Minister to turn the tide of Britain.

But while some economists are adopting a pessimistic tone, other experts claim a recession is far from inevitable. Sir Nigel Wilson, CEO of pension and savings giant Legal & General, said: “Is it possible to avoid a recession? Yes. Part of it is just math, if you can actually spend more, invest more and get ahead fast. He said the government should simplify and streamline planning rules, which is slowing investment at the moment.

Tory leadership hope Liz Truss has also denied a recession is nailed. Following last Thursday’s bleak Threadneedle Street economic forecast, she said: “Obviously what the Bank of England has said is extremely worrying but not inevitable. We can change the outcome and make the economy more likely to grow.”

However, some city economists are less hopeful.

Ruth Gregory of consultancy Capital Economics acknowledged that much of the 1.3 percent fall she expects in June will be due to the extra bank holiday.

On previous occasions, she pointed out, it appeared that extra summer holidays sapped growth by about 1 percentage point.

“But we still think a recession is coming,” Gregory said.

“The rise in consumer price inflation will reduce people’s real incomes and means a recession is now likely.”

Unlike the Bank of England, which expects a five-quarter slowdown that will wipe out the economy by 2.2 percent peak to trough, Capital Economics expects the recession to be shorter and shallower. In fact, she believes the slump started as early as the second quarter of this year, as she estimates production fell 0.2 percent. It will take four quarters, Gregory estimates, and contract the economy by 1 percent from peak to trough.

An emergency budget, as promised by Truss, could also help if there’s “targeted spending for households that really need it,” Gregory added.

Other economists are even more desperate than the Bank of England and Governor Andrew Bailey. Christopher Dembik, an analyst at Denmark’s Saxo Bank, said Britain’s “worst is yet to come” and forecast a “long and deep” recession. He pointed to falling car sales, higher inflation and “obscene energy bills” and said the UK was “starting to look like an emerging country”.

But Julian Jessop, an economist at the Institute of Economic Affairs, dismissed the proposal as “ridiculous”.

He said: “The same problems affect almost all western economies. The idea that this level of uncertainty is what it would take for us to become an emerging market is ridiculous.’

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