- GDP in Q3 -0.2% q/q vs Reuters poll -0.5%
- September Economic Output -0.6% m/m vs Poll -0.4%
- GDP was revised in July and August
- Economists still see the UK heading into recession
- The finance minister predicted a “tough road ahead”.
LONDON, Nov 11 (Reuters) – Britain’s economy shrank at the start of a long recession in the three months to September, underscoring the challenge for Chancellor of the Exchequer Jeremy Hunt as he prepares to raise taxes and cut spending next week.
Economic output fell 0.2% in the third quarter, less than the 0.5% analysts polled by Reuters had forecast, official data showed on Friday.
But it was the first drop in GDP since the start of 2021, when Britain was still under tight coronavirus restrictions as households and businesses grappled with a severe cost-of-living crisis.
Britain’s economy is now below its pre-pandemic level – it is the only Group of Seven economy not yet fully recovered from the COVID slump – and is smaller on a calendar-quarter basis than it was three years ago.
Although the fall was smaller than investors had feared, it left Britain on course for a rapid return to the recession since the mid-1970s, the Resolution Foundation think tank said.
Its research director James Smith said the figures provided a sobering backdrop to Hunt’s November 17 budget announcement, which he said Britain was trying to reassure investors about its public finances – and its credibility on economic policy – after Liz Truss’s brief spell as prime minister. .
“The chancellor must strike a balance between keeping public finances stable without exacerbating the cost-of-living crisis, or hitting already stretched public services,” Smith said.
Responding to the data, Hunt repeated his warnings that tougher decisions on taxes and spending would be needed.
“I am under no illusion that there is a difficult road ahead that will require very difficult decisions to restore confidence and economic stability,” Hunt said in a statement.
“But to achieve long-term, sustainable growth, we need to capture inflation, balance the books and get credit off the ground,” he added. “There’s no other way.”
Recession is real
The Bank of England said last week that Britain’s economy could slide into a two-year recession if interest rates rise as investors are pricing in.
Even without further rate hikes, it said the economy would contract in five of the six quarters to the end of 2023.
Suren Thiru, economic director of the Institute of Chartered Accountants in England and Wales, said: “Fears of recession are turning into reality.
“This productivity decline is the start of a punishing period that will push us into a technical recession from the end of this year, driven by higher inflation, higher energy prices and higher interest rates.”
In September alone, when Queen Elizabeth’s funeral was marked with a public holiday that closed many businesses, Britain’s economy contracted by 0.6%, according to the Office for National Statistics. That was a bigger monthly drop than the average forecast for a 0.4% contraction in a Reuters poll and the biggest since January 2021 when there was a COVID-19 lockdown.
But GDP data for August was revised to show a smaller 0.1% contraction compared to the original reading of a 0.3% contraction, and July GDP now rose 0.3% from the previous estimate of 0.3%.
Upward revisions to GDP data for July and August reflected new, quarterly figures in health and education output, along with some strong readings from the professional and scientific and wholesale and retail sectors, the ONS said.
Report by William Schomberg and David Milligan; Editing by Kate Holden and Catherine Evans
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