- Q3 GDP -0.2% q/q vs Reuters poll -0.5%
- September economic output -0.6% m/m vs. survey -0.4%
- GDP was revised in July and August
- Economists still see Britain heading into recession
- The Minister of Finance predicts a “difficult road”.
LONDON, Nov 11 (Reuters) – Britain’s economy shrank in the three months to September at the start of a long recession, underscoring challenges for Chancellor of the Exchequer Jeremy Hunt as he prepares for tax hikes and spending cuts next week.
Official data on Friday showed that economic output fell 0.2% in the third quarter, less than the 0.5% decline analysts had expected in a Reuters poll.
But it was the first contraction in gross domestic product since the start of 2021, when Britain was still under severe coronavirus restrictions as households and businesses grappled with a severe cost-of-living crisis.
The UK economy is now below its pre-pandemic size – it is the only Group of Seven economy yet to fully recover from the COVID recession – and is smaller on a calendar quarter basis than three years ago.
The Resolution Foundation think tank said that although this fall was less than investors had feared, it put Britain on track for the fastest return to its recession since the mid-1970s.
Its director of research, James Smith, said the figures provided an exciting backdrop for Hunt’s budget announcement on November 17, when he will try to reassure investors that Britain can fix its public finances and its credibility on economic policy. after Liz Truss’s brief spell as Prime Minister.
“The chancellor needs to strike a balance between putting public finances on a sound footing, without exacerbating the cost of living crisis or hitting already stretched public services,” Smith said.
In response to the data, Hunt reiterated his warnings that tough decisions on tax and spending would need to be made.
“I don’t foresee a difficult road ahead that will require very difficult decisions to restore confidence and economic stability,” Hunt said.
“But to achieve long-term and sustainable growth, we need to contain inflation, balance the books and reduce debt,” he said. – There is no other solution.
THE FACTS OF THE RECESS
The Bank of England said last week that Britain’s economy would be in recession for two years if interest rates were to rise as much as investors were pricing in.
Even without further interest rate hikes, the economy will contract in five of the six quarters by the end of 2023, it said.
Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said: “Fears of recession are becoming reality.”
“This output cut is the start of a punitive cycle as inflation, energy bills and interest rates rise from higher incomes, pushing us into a technical recession later this year.”
The Office for National Statistics said the UK economy shrank by 0.6% in September alone, when Queen Elizabeth’s funeral was marked by a one-off public holiday that closed many businesses. That was a bigger monthly drop than the median forecast for a 0.4% drop in a Reuters poll and the biggest since January 2021, when the COVID-19 shutdown began.
But August’s gross domestic product data was revised down to show a 0.1% decline, compared with an initial reading of 0.3%, and July GDP now rose 0.3%, up from the previous estimate of a 0.1% increase. found
The upward revisions to GDP data for July and August mainly reflected new quarterly figures for health and education products, along with some stronger readings from the professional and scientific, wholesale and retail sectors, the ONS said.
Reporting by William Schomberg and David Milliken; Edited by Kate Holton and Catherine Evans
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