On Wednesday, Goldman Sachs and JPMorgan revised down their GDP growth forecasts for the entire year for the UK due to an unexpectedly severe economic decline in July.
Both brokerages reduced their projections by 20 basis points, with JPMorgan now expecting 0.4% growth and Goldman Sachs forecasting growth at 0.3%.
In contrast to expectations in a Reuters survey of experts, which had forecasted a 0.2% drop, the Office for National Statistics (ONS) reported that GDP contracted by 0.5% in July compared to June.
While JPMorgan and Morgan Stanley economists anticipate a stagnant UK economy for this year, a barrage of discouraging economic data could signal a significant risk of recession, they warned.
The global banks attributed the weakness and diminishing momentum to a severe decline in the private sector, in contrast to the ONS, which attributed the economic contraction to adverse weather and doctor-led strikes.
“August PMIs were worse than we had expected, and we are getting slightly concerned about the pace of deterioration in employment indicators too,” said Bruna Skarica, an economist at Morgan Stanley, as quoted by Reuters.
The UK economy may be deteriorating more than anticipated by the Bank of England ahead of its September policy meeting, according to GDP figures.
Skarica now expects third-quarter GDP to remain flat, in contrast to a previous prediction of 0.1% growth.
“We have been arguing against the idea that the UK is entering into a proper recession dynamic… That remains the case, but the near-term path for growth looks worse,” said JPMorgan economist Allan Monks to Reuters.
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