UK Dodges Recession, Pound Recovers to $1.12

A week on from the eventful mini-Budget, Friday throws up some surprises

Alliance News 30 September, 2022 | 9:57AM
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It's been a dramatic week of economic news, involving a record low for the pound against the dollar, an intervention by the Bank of England, a warning from the IMF and extreme politicial fallout.

Friday has yet more news. The ONS has just put out some data on UK GDP, the pound has made a dramatic comeback from $1.06 to $1.12 within a day, and prime minister Liz Truss and chancellor Kwasi Kwarteng will meet with head of the Office of Budget Responsibility on Friday, in the latest effort by the pair to reassure markets and voters that the economic turmoil of recent days is under control.

Treasury and Downing Street sources hit back at suggestions it was an emergency meeting, but it comes after days of chaos in the financial markets and fears of rocketing mortgage bills sparked by the Chancellor's mini-budget last week.

The pair will meet with Richard Hughes, the head of the independent spending watchdog pushed to the fore amid the political and economic fallout from Friday's mini-Budget.

News of the meeting was welcomed chair of the Treasury Select Committee Mel Stride, one of the growing caucus of Conservatives with concerns about the government's plans.

Conservative MPs have urged Truss and Kwarteng to change course on Friday's bold tax plans, but the two have insisted that they are staying the course.

GDP Estimates Revised Higher

UK gross domestic product saw surprise second quarter growth, defying an earlier estimate and providing some much-needed good news for the economy, figures on Friday showed.

The UK economy is now estimated to have grown 0.2% in the second quarter from the first, according to the Office for National Statistics. This compares with a previous estimate that had indicated a 0.1% contraction.

Consensus, according to FXStreet, had not been expecting any revision to the figures.

This follows 0.8% growth in the first quarter from the final quarter of 2021.

On an annual basis, gross domestic product grew by 4.4% in the second quarter. This compares with a previous estimate of just 2.9%.

It is still a sharp slowdown from the 8.7% annual growth seen in the first quarter, however.

The second quarter GDP growth defies the Bank of England's prediction of a recession as early as the third quarter. The BoE last week said the UK economy will shrink 0.1% in the third quarter. Had it also declined in the second, it would have met a basic definition of a recession - being two successive quarters of economic decline.

UK House Price Growth Below Double Digits

And growth in UK house prices slowed to single digits in September, according to the latest figures from Nationwide on Friday.

On an annual basis, prices grew by 9.5% in September. Month-on-month, prices were flat in September. In August, they had edged up 0.7% from July.

Consensus had forecast monthly growth of 0.3%.

"This is the first month not to record a sequential rise since July 2021," noted Robert Gardner, Nationwide's chief economist.

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