Britain’s economy contracted by 0.2% in the three months to September, in what is expected to be the start of a long recession.
In its first growth estimate for the third quarter, the Office for National Statistics (ONS) presented a bleak picture of the economy ahead of Chancellor Jeremy Hunt’s autumn statement next week.
Services sector activity stalled, with zero growth in the quarter, driven by a fall in consumer spending as households came under increasing pressure from the cost of living crisis.
Growth in the construction sector slowed, while factory output fell due to a sharp decline in manufacturing as some companies continued to struggle with supply chain difficulties and shortage of key materials.
The Bank of England expects the latest gross domestic product figures to mark the start of a protracted recession in the UK as rising interest rates and the cost of living weigh on activity, it will last until the end of next year. Another negative growth figure for the last three months of 2022 would confirm a technical recession. The economy grew by 0.2% in the second quarter of 2022.
Hunt said the global economy was facing a period of “extreme turbulence” but that the “fundamental resilience of the UK economy is cause for long-term optimism”.
He added: “I am under no illusions that there is a difficult road ahead, one that will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term sustainable growth, we must control the inflation, balance the accounts and get the debt down. There is no other way.”
The ONS said the economy’s performance in the three months to September had been hit by the extra bank holiday for Queen Elizabeth II’s funeral, which led to weaker activity.
The economy shrank by 0.6% in September alone as shops and other businesses closed their doors as a mark of respect, with about half of the decline attributed to the mourning period, with the shutdown widespread that caused a steeper decline than usual for a holiday. .
Alpesh Paleja, chief economist at lobby group the Confederation of British Industry, said that even taking the extra bank holiday into account, it was clear that underlying activity had weakened. However, he warned the chancellor against embarking on an austerity campaign that would further slow growth.
“Weaker growth prospects and persistently high inflation will make some decisions on economic policy difficult. The autumn statement must learn the lessons of the 2010s,” he said.
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The snapshot comes amid growing fears about the strength of the economy as households curb spending amid the highest inflation rates since the early 1980s, along with a dramatic rise in mortgage costs for some families after Liz Truss’ disastrous mini-budget.
The ONS said there had been a sharp decline in the buying, selling and renting of property in September, falling by 0.9%. Figures this week from Halifax, the UK’s biggest mortgage lender, showed a fall in house prices last month after the ill-fated mini-budget pushed up borrowing costs.
Rachel Reeves, the shadow chancellor, said the latest figures represented “another failed page in the Tories’ growth record” after a decade of underinvestment and rising inequality. “The reality of this failure is that family finances are collapsing, British businesses are being left behind and more anxiety about the future,” he said.