The UK could be entering a recession following a contraction in the economy during the third quarter.

 As of December 22, data indicates that Britain's economy could be in a recession, marked by a contraction in the Gross Domestic Product (GDP) during the period between July and September. This contraction, revealed by the Office for National Statistics (ONS), amounted to 0.1%. The downturn occurred shortly after Finance Minister Jeremy Hunt made the uncommon suggestion that the Bank of England might consider reducing interest rates to stimulate growth.

The ONS had initially estimated that the economy remained unchanged from the preceding three months, and economists surveyed by Reuters had predominantly anticipated a similar unchanged reading.

Likewise, the revised assessment indicates that the GDP for the second quarter was stagnant, marking a revision from the earlier projection of 0.2% growth.

Conversely, in a separate set of data released on the same Friday, there were more optimistic indicators for the economy. Retail sales experienced a notable surge in November, surpassing expectations with a 1.3% increase from October, largely attributed to discounted sales.

The upswing in retail sales volumes can be attributed to substantial discounts offered during Black Friday promotions. Despite this surge, sales declined over the three months leading to November and remained below pre-pandemic levels, as reported by the statistics office.

Following the release of the data, the British pound saw an immediate uptick against both the dollar and the euro.

Finance Minister Jeremy Hunt, whose Conservative Party is currently trailing significantly behind the opposition Labour Party in the polls, made an uncommon move by commenting on the Bank of England's (BoE) interest rate decisions. In an interview with the Financial Times published late on Thursday, Hunt expressed optimism, stating, "There's a reasonable chance that if we stick to the course we're on, we're able to bring down inflation, and the Bank of England might decide they can start to reduce interest rates." This comes amid expectations of an upcoming election next

The current estimate places Britain's economy at 1.4% larger than its pre-COVID levels in early 2020, representing the second slowest recovery among the Group of Seven nations, trailing only behind Germany.

Economists hold differing views on whether the third-quarter contraction could mark the onset of a recession, defined by two consecutive quarters of economic decline. Ashley Webb from Capital Economics suggests that the data hints at the possibility of a mild recession starting, with signs of economic struggle emerging in the fourth quarter, compounded by the yet-to-be-fully-felt impact of increased borrowing costs.

On the contrary, Samuel Tombs at Pantheon Macroeconomics anticipates GDP maintaining stability between October and December. He envisions a more favorable outlook for households in 2024, as inflation is projected to ease, the tax burden lightens, and welfare benefits increase.

The data released on Friday indicates that households bolstered their savings in the third quarter, with the savings ratio, measuring the proportion of income saved compared to total disposable income, rising from 9.5% in the second quarter to 10.1%. This increase is attributed to incomes growing at a faster pace than spending.

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