The British economy contracted in the three months to September at the start of what is likely to be a lengthy recession, adding to the challenge for British Chancellor of the Exchequer Jeremy Hunt as he prepares to raise taxes and cut spending.
Economic output shrank 0.2 percent in the third quarter, less than the 0.5 percent contraction analysts had forecast in a Reuters poll, official data showed yesterday.
However, it was the first fall in GDP since the start of last year, when Britain was still under tight COVID-19 restrictions, as the economy struggles in the face of a severe cost-of-living crisis.
Photo: Reuters
The Bank of England last week said that the British economy was set to go into a recession that would last two years if interest rates were to rise as much as investors had been pricing.
Even without further rate hikes, the economy would shrink in five of the six quarters until the end of next year, it said.
“Fears of a recession are turning into reality,” said Suren Thiru, economics director for the Institute of Chartered Accountants in England and Wales.
“This fall in output is the start of a punishing period as higher inflation, energy bills and interest rates clobber incomes, pushing us into a technical recession from the end of this year,” Thiru said.
In September alone, when the funeral of Queen Elizabeth II was marked with a one-off public holiday that shut many businesses, the British economy shrank 0.6 percent, the Office for National Statistics said.
That was a bigger monthly fall than a median forecast of a 0.4 percent contraction in the Reuters poll and the largest since January last year, when there was a COVID-19 lockdown.
However, GDP data for August was revised to show a marginal 0.1 percent contraction compared with an original reading of a 0.3 percent shrinkage, and GDP in July was revised up to 0.3 percent from a previous estimate of 0.1 percent.
The upward revisions to July and August’s GDP data mostly reflected new, quarterly figures on health and education output, alongside some stronger readings from the professional and scientific and wholesale and retail sectors, the Office of National Statistics said.
The weak economic outlook provides a tough backdrop for next week’s budget statement by Hunt.
Responding to yesterday’s data, he repeated his warnings that tough decisions on tax and spending would be needed to repair Britain’s public finances and the government’s credibility on economic policy after Liz Truss’s brief spell as prime minister.
“I am under no illusion that there is a tough road ahead -—one which will require extremely difficult decisions to restore confidence and economic stability,” Hunt said in a statement.
“But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way,” he added.
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