- GDP in Q3 -0.2% q/q vs Reuters poll -0.5%
- September economic output -0.6% m/m vs poll -0.4%
- GDP in July and August was revised up
- Economists still see the UK heading into recession
- Finance Minister predicts “difficult road ahead”
LONDON, Nov 11 (Reuters) – Britain’s economy shrank in the three months to September at the start of what is likely to be a long recession, underscoring challenges for finance minister Jeremy Hunt as he prepares to raise taxes and cut spending next week.
Economic output shrank 0.2% in the third quarter, less than the 0.5% contraction analysts had forecast in a Reuters poll, official data showed on Friday.
But it was the first fall in gross domestic product since the start of 2021, when the UK was still under strict coronavirus restrictions, as households and businesses struggled with a severe cost-of-living crisis.
The UK economy is now well below its pre-pandemic size – it is the only Group of Seven economy to have fully recovered from the COVID slump – and is smaller than it was three years ago on a calendar-quarter basis.
The Resolution Foundation think tank said that although the fall was smaller than investors had feared, it left Britain on course for its fastest return to recession since the mid-1970s.
Research director James Smith said the figure provides a sobering backdrop for Hunt’s November 17 budget announcement, when he will try to convince investors that Britain can repair its public finances – and its credibility on economic policy – after Liz Truss’ brief spell as prime minister. .
“The Chancellor must strike a balance between putting public finances on a sustainable footing, without making the cost of living crisis worse, or hitting already stretched public services,” said Smith.
Responding to the data, Hunt repeated his warning that tough decisions on taxes and spending will be needed.
“I am under no illusions that there is a difficult road ahead – one that will require difficult decisions to restore confidence and economic stability,” Hunt said in a statement.
“But to achieve prolonged, sustainable growth, we need to arrest inflation, balance the books and reduce debt,” he added. “There is no other way.”
The Bank of England said last week that Britain’s economy is set to enter a recession that will last two years if interest rates rise as much as investors have priced.
Even without further rate hikes, the economy will shrink in five of the six quarters through the end of 2023, he said.
“Fears of recession are becoming reality,” said Suren Thiru, director of economics for the Institute of Chartered Accountants in England and Wales.
“This drop in output is the beginning of a period of punishment as higher inflation, energy bills and interest rates reduce incomes, pushing us into a technical recession from the end of this year.”
In September alone, when Queen Elizabeth’s funeral was marked by the only public holiday that closed most businesses, the UK economy shrank by 0.6%, the Office for National Statistics said. That was a bigger monthly fall than the median forecast for a 0.4% contraction in a Reuters poll and the biggest since January 2021, when there was a COVID-19 lockdown.
But gross domestic product data for August was revised to show a marginal contraction of 0.1% compared to the original reading of a 0.3% shrinkage, and GDP in July is now seen to have increased by 0.3%, up from estimates of 0.1%.
The upward revisions to July and August GDP data mostly reflected new quarterly figures in health and education output, with some stronger readings from the professional and scientific and wholesale and retail sectors, the ONS said.
Reporting by William Schomberg and David Milliken; Editing by Kate Holton and Catherine Evans
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