Recession threat looms as UK stops mourning Queen | Financially

Britain’s fragile economy was already teetering on the brink of recession even before Queen Elizabeth II’s death last week. That prospect is now much greater as businesses cancel events amid a period of national mourning that culminates in the bank holiday for the late monarch’s funeral.

Economists say shops closing their doors or opening reduced hours on Monday, alongside the loss of an entire working day, will lead to a sharp fall in output at a time when Britain is struggling for growth amid a cost of living crisis.

Estimates of the hit to the economy are inevitably sketchy and currently based almost entirely on anecdotal evidence. There is already a rush of mourners to London, creating unprecedented demand on transport, a boon for the capital’s hoteliers, taxi drivers, hospitality venues and flower sellers, making up for losses elsewhere. However, it is unlikely to offset the overall decline in activity.

“We see a greater risk of the UK slipping into a technical recession,” said Modupe Adegbembo, economist at AXA Investment Managers. “As the UK mourns the death of the Queen, the extra bank holiday granted for her funeral could see growth lower than we initially expected, raising the risk of the UK slipping into a technical recession this quarter” .

In an earlier form, it is not a question of whether there will be a hit to growth but how big the hit will be. There were additional bank holidays in 2002 to mark the Queen’s golden jubilee and in 2012 for the wedding of the Duke and Duchess of Cornwall and Cambridge, both of which led to weaker activity as factories, offices and construction sites closed.

Over time, the growth of the digital economy has meant that the impact of an extra day off has lessened, but even so a double bank holiday to celebrate the Queen’s platinum jubilee knocked about 0.5 percentage points off monthly growth in June. A repeat of this next week would reduce gross domestic product by £10-11 billion, given that the UK is a £2.2 trillion economy.

In addition, there will be the additional loss of production associated with business closures and events being postponed during the 10 days between the Queen’s death and her funeral. Some of these costs will be deferred rather than lost forever, with postponed football matches being played at a later date and fixtures being rescheduled.

But some of the spending will never be recovered, and even a small decline in gross domestic product in September would be enough to tip the balance in favor of a second consecutive quarter of negative growth. The economy shrank 0.1% in the quarter to June. Two consecutive quarters of falling GDP are considered by economists to be the technical definition of a recession.

Official data showed the economy made a weaker-than-expected recovery in July, with a monthly growth rate of 0.2%, after output fell sharply by 0.6% in June, when the loss of an entire working day due to its jubilee platinum burdened the activity.

Following Liz Truss’ announcement of a freeze on consumers’ energy bills from October, analysts expect headline inflation is now unlikely to rise much higher than July’s 40-year record high of 10.1%. But while helping households with their living costs should lessen the severity of a recession, it’s unlikely to prevent it entirely, as families will still face gas and electricity costs more than double what they were a year ago.

Paul Dales, chief UK economist at Capital Economics, said he expects GDP will eventually recover to its previous level, but some of the growth that would have occurred will have been missed. Dales was already in a second quarter of negative growth between July and August, but now believes the decline in the third quarter will be steeper.

Some sectors and some regions of the UK will do better than others. London’s hospitality industry is expected to do well from the crowds flocking to the capital to pay their respects. George Buckley, economist at Japanese bank Nomura, said: “London florists will do well and coffee sales will go through the roof. But overall people are not going to produce as much.”

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