The UK’s economy shrunk by 0.2% between July and September, in what some experts say could be the start of the longest recession since records began.
The Office for National Statistics (ONS) said that gross domestic product (GDP) had fallen by 0.6% in September, in part due to the Queen’s funeral.
It added to a 0.2% drop for the full quarter – lower than had been expected as the ONS revised its estimates for July and August.
“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,” said ONS director of economic statistics Darren Morgan. “The quarterly fall was driven by manufacturing, which saw widespread declines across most industries.
“Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”
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 cautioned that this would only happen if it raises interest rates to around 5.2% - which the market was expecting at the time - adding that it did not expect rates to reach such a high level; which would imply that the recession could be less drawn out.
The September figure was worse than expected – analysts had forecast a 0.5% drop during the month.
However, the ONS changed its readings for August and July, helping for the quarter as a whole. The economy was previously thought to have shrunk by 0.3% in August but that was revised to 0.1%.
In July the economy had previously thought to have risen by 0.1% – the ONS changed that to 0.3%
Chancellor Jeremy Hunt said: “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.
“But to achieve long-term sustainable growth, we need to grip inflation, balance the books and get debt falling; there is no other way.”
Shadow chancellor Rachel Reeves said the latest GDP figures were “extremely worrying”.
The Labour MP said: “Today’s numbers are another page of failure in the Tories’ record on growth, and the reality of this failure is family finances crunched, British businesses left behind and more anxiety for the future.
“We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity.”
Federation of Small Business’ Scotland policy chair Andrew McRae commented: “Though the onset of a recession doesn’t come as a great shock, that doesn’t make it any less worrying.
“Small businesses have proven themselves able to adapt and survive throughout the last three years, and their tenacity and resilience should never be discounted.
“Neither, though, should it be taken for granted - we know that small businesses are so often the backbone of their local economies, and it is their innovation and ability to spot and maximise opportunities that will help see us all through the difficult times ahead. But they can’t do it alone.
“All eyes will therefore be on next week’s Autumn Statement and the Scottish Government’s Budget next month – they must not shy away from pro-growth measures.
“Decision makers at all levels must unlock the potential of small businesses to survive the tough winter ahead and lead the way to economic recovery in the spring.”
The CBI urged the government to “learn the lessons” of the last decade, in the wake of the latest GDP figures.
Alpesh Paleja, the organisation's 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.
“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.”
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