The UK economy contracted by 0.2 per cent between July and September, compared to growth of 0.2 per cent in the previous three months, the Office for National Statistics said this morning.
Commenting on the gross domestic product (GDP) figures that showed a 0.2 per cent contraction in the third quarter of the year, ONS director of economic statistics Darren Morgan said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.
“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries,” he noted.
“Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”
The ONS added that gross domestic product (GDP) had fallen by 0.6 per cent in September alone, in part due to the Queen’s funeral.
Beginning of long recession
It could be the beginning of a recession – which is defined as two quarters of shrinking GDP in a row.
The reading comes just a week after the Bank of England published a caveated forecast that the UK might be headed for an eight-quarter recession – the longest consecutive recession since reliable records began in the 1920s.
However, the Bank itself cautioned that this would only happen if it raises interest rates to around 5.2 per cent – which the market was expecting at the time.
The Bank itself said it did not expect rates to reach such a high level, which would imply that the recession could be less drawn out.
In response, Chancellor of the Exchequer, Jeremy Hunt said this a.m. that “we are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.”
“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.”Jeremy Hunt this morning
“But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.
“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.”
‘Learn the lessons’
The CBI has urged the Government to “learn the lessons” of the last decade, in the wake of the latest GDP figures.
Alpesh Paleja, a CBI lead economist, said: “The latest GDP data likely marks the start of a downturn for the UK economy, which could last for most of the coming year.
“Even accounting for an extra bank holiday in September, it’s clear that underlying activity has weakened – as shown by our recent business surveys.
“A weaker growth outlook and persistently high inflation will make for some difficult decisions on economic policy.”Alpesh Paleja, a CBI lead economist
“The autumn statement must learn the lessons of the 2010s: fiscal sustainability and lifting trend growth are both immediate priorities.
“Alongside reassuring markets and protecting the most vulnerable, the Government should safeguard capital spending and investment allowances to drive private sector growth.”
Also responding to the latest GDP figures this morning, the Federation of Small Businesses called the numbers “dreadful news”.
National chairman Martin McTague said: “Confirmation of a shrinking economy is dreadful news for small businesses that have been facing increasing recessionary pressures for months now.
“Lower levels of reserves and resources mean they are more vulnerable to downturns, and at a time when confidence is deteriorating in both consumers and businesses, the outlook for the UK economy is now very bleak indeed.
“The fall in GDP is one headline figure made up of countless bits of disappointing news for small businesses across the country – a new venue or premises they couldn’t open, a contract which ended unexpectedly, a staff member they had to let go.
“Taken together, the impact on the economy is huge and the Government must demonstrate that it has grasped the scale of the issue.”
Shadow chancellor Rachel Reeves called the latest GDP figures “extremely worrying” this morning.
The Labour MP tweeted: “This is extremely worrying – and is another page of failure in the Tories’ record.
“Britain has so much potential to grow,” she added.
“Labour’s Green Prosperity Plan and our partnership with business will unlock that.”
More to follow.
Meanwhile, the Liberal Democrats accused the Government this morning of leaving the UK economy “smaller”.
Treasury spokesperson Sarah Olney said: “Today’s figures show the Conservative Government is leaving our economy smaller and all of us poorer.
“People will never forgive this Government for crashing our economy during a cost-of-living crisis and putting up their mortgages by hundreds of pounds a month.”Sarah Olney
“The Conservative Party can never again claim that they are the party of sound money.
“Ministers must now do whatever it takes to protect households from the economic downturn they have caused, starting with a mortgage protection fund to ensure nobody loses their home this winter.”