Update on 14th October: Kwasi Kwarteng has been sacked as Chancellor
The UK economy fell in August even before Chancellor Kwasi Kwarteng’s late September mini-Budget caused turmoil in the markets.
GDP Growth for August was -0.3%, while July’s originally reported 0.2% growth has been revised down to 0.1%. Over the three months to August, GDP fell 0.3%.
The production sector – which includes manufacturing, mining and quarrying, electricity and gas, steam and air conditioning supply, and water supply – was the main source of weakness in the economy, down 1.8% in August.
Kwarteng has brought forward the unveiling of the government’s fiscal plan, which will detail how it intends to finance widespread tax cuts, from November 23rd to October 31st following pressure from his own Conservative MPs to address the uncertainty.
The government has also been criticised for snubbing scrutiny from watchdog the Office for Budget Responsibility over its Budget plans, which amount to the UK’s biggest tax cuts for 50 years.
The seemingly ‘pro-business’ Budget has caused the UK government’s borrowing costs to leap to a 20-year high while the Bank of England has repeatedly bought government bonds to stave off a collapse.
“With a significant tightening of financial conditions through September and October, there is certainly a chill in the air. We expect this release to be a sign of the winter to come,” Wealth Club head of investment research Jonathan Moyes said.
“The market’s attention will remain firmly fixed on both the Chancellor and the Bank of England as they look to restore confidence and stabilise the government bond market.”
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Wealth Club provides high net-worth individuals and investors with researched information on investment opportunities not typically available through mainstream stockbrokers or financial advisers.
Set up in February 2016, it is now the largest non-advisory broker of tax efficient investments such as VCTs, EIS and Inheritance Tax Portfolios. Since launch 9,000 clients have invested more than £900 million through its platform.
“The weak August GDP number follows a marked downturn in PMIs (purchasing managers’ indexes) over the summer and so this is unlikely to catch the market by surprise,” continued Moyes.
“It was hard to find many positives in the data, although the construction sector continues to be an area of strength.
“With inflation remaining high, the bank is unlikely to see weak GDP as cause for softening policy.
“The government, on the other hand, is clearly looking to stave off a severe recession with loose fiscal policy. We look forward to the detail on how this will be funded on 31st October.”