William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy shrank in the three months to September in what could be a prolonged recession, underscoring Challenges facing the UK economy. Treasurer Jeremy Hunt is set to raise taxes and cut spending next week.
Economic output contracted 0.2% in the third quarter, below the 0.5% forecast by analysts in a Reuters poll, official data showed on Friday.
But this is the first drop in GDP since 19 began, when the UK was still under strict coronavirus restrictions, with households and businesses alike battling a severe cost of living crisis.
The UK’s economy is now further below its pre-pandemic size – it’s the only G7 economy yet to fully recover from the Covid-19 slump – and smaller than it was three years ago the previous calendar quarter.
The Resolution Foundation think tank said that although the drop was less than investors feared, it put the UK on track for a since mid-term 1970s.
James Smith, its director of research, said the numbers provided a sobering backdrop for Hunter’s November. 17 Budget announcement, when he will try to convince investors that the UK can fix its public finances – and its role in the economy – after Liz Truss’s brief tenure as prime minister policy credibility.
“The prime minister will need to strike a balance between putting public finances on a sustainable basis without making the cost of living crisis worse or hitting an already stretched public service,” Smith said.
Data, Hunter repeated his warning that tough decisions on taxes and spending will be needed.
“I have no illusions that there is a hard road ahead – one that requires extremely difficult decisions to restore confidence and economic stability,” Hunter said in a statement.
“But to achieve long-term, sustainable growth, we need to control inflation, balance the books and reduce debt,” he added. “There is no other way.”
REALITY OF RECOVERY
The Bank of England said last week that if interest rates continue to rise, the UK economy will slip into a recession that will last for two years Years because investors have been pricing in.
It said that even without further rate hikes, the economy would shrink in five of the six quarters until the end of 2023.
“Recession fears are becoming a reality,” said Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales.
“As inflation, energy bills and rising interest rates hit incomes, putting us in a technical recession from the end of the year, falling output is the beginning of a punishing period.”
The UK economy shrank by 0.6% in September alone, when Queen Elizabeth’s funeral was marked by a one-off public holiday and many businesses closed, the ONS said. That was larger than the median forecast in a Reuters poll for a contraction of 0.4% and the biggest drop since January 19, when COVID-19 19 ) blocked.
But the GDP data for August has been revised to a slight contraction of 0.1%, compared to the original reading of a contraction of 0.3%, and GDP now thinks July It rose 0.3%, up from a previous estimate of 0.1%.
Upward revisions to July and August GDP data primarily reflect new quarterly data on health and education output, as well as some stronger readings from the professional and scientific and wholesale and retail sectors, ONS said.