While statistical quirks, including the presence of an extra bank holiday for the Queen’s Diamond Jubilee, mean the nation may avoid two consecutive quarters of contraction, almost every other economic metric is screaming recession.
That leaves post-pandemic Britain on course to underperform every other major leading economy next year, posing a severe headache for both Bank of England Governor Andrew Bailey and Prime Minister Boris Johnson.
Consumer confidence is already below levels seen in any economic downturn since at least the 1970s, even before the full effects of the fastest inflation in decades kicks in. And a government intervention to cut energy bills will only go so far to help. Until then, households had been facing the biggest fall in living standards since the 1950s.
Even the housing market, a clear demonstration of people’s sense of their own wealth and a pillar of strength in recent years, is showing some signs of cooling, with demand for mortgages dropping as interest rates rise.
With inflation set to peak in double digits in October, five times the BOE’s 2% target, Bailey and his colleagues have little option but to keep raising interest rates, even if means making the cost of living crisis worse in the short run.
For Johnson, who came close to being ousted by his own Conservative Party in a confidence vote on Monday, rescuing the economy is vital if he’s survive much longer. It was no coincidence that his first speech since the ballot stressed the need for tax cuts and floated lower tariffs to tackle the cost of living crisis.
Sign of the mounting pressures on households and businesses are expected to be revealed in data this week.
The economy expanded just 0.1% in April, according to the median forecast in a Bloomberg survey, following zero growth over the previous two months. Retail sales are thought to have fallen in May, and economists expect the labor market lost momentum with employers adding little more than half the number of payrolls they did in April.
Sandwiched between the reports, the BOE on Thursday is expected to deliver an unprecedented fifth consecutive hike to take interest rates to the highest since 2009.