The U.K. economy stagnated in the third quarter as the Bank of England’s interest rate increases hit the property market hard.
Gross domestic product, which measures the total value of goods and services produced by the economy, was flat in the three months through September from the second quarter, the Office for National Statistics said on Friday. That was a slowdown from growth of 0.2 percent in the spring quarter but marginally better than market expectations for a 0.1 percent decline.
The figures were dominated by a 1.6 drop in activity related to the property market, as mortgage lending retreated to pandemic-era levels in response to the highest interest rates in 15 years.
Somewhat surprisingly, in the light of recent developments, there were no revisions to figures for the previous two quarters. As such, GDP at the end of September was 0.6 percent higher than a year earlier.
The Bank’s latest forecasts for the U.K. economy, published last week, indicate that growth will stay subdued for the next two years as its interest rate hikes slowly squeeze inflationary pressure out of the system. The Bank has indicated it won’t raise rates any further, barring fresh upside surprises.
“The U.K. economy has (so far) shown remarkable resilience to a huge rise in the cost of credit, cost of staples and geopolitical cross-currents,” said Panmure Gordon, chief economist Simon French via X, albeit he warned that growth is likely to stay weak for the next couple of years “as the economy adjusts to a higher cost of capital.”
