The UK economy is showing the first signs of a recession to come, as it contracted by 0.2 percent in the third quarter of this year, official figures show. The Office for National Statistics (ONS) reported national output had taken a hard dip in September, leaving the period of July-September in overall negative growth.
Growth fell by 0.6 percent in September, which the ONS attributed in part to the state funeral for Queen Elizabeth II and slow or flat production output as consumer spending contracted.
A recession is only officially declared when there have been two consecutive quarters of negative growth – however, this is widely expected to occur by the end of the year.
Britain’s gloomy economic outlook pushed the Bank of England to state last week that the country was already in recession.
It said there was a scenario it was anticipating in which the UK remained in recession for the next two years.
While it will be the longest since records began a hundred years ago, it will not be the sharpest decline, the Bank said.
Warning that unemployment could double by 2025, BoE chief Andrew Bailey said Britons should expect a “tough road ahead”.
Raising interest rates to 3 percent, he said the Bank was acting forcefully now otherwise the situation “will be worse later on”.
Soaring inflation has been spurred on by higher energy and food prices – in part caused by the war in Ukraine, leaving many households facing hardship.
The announcement of the figures comes less than a week before Chancellor Jeremy Hunt outlines Rishi Sunak’s vision for the economy.
The Prime Minister has cautioned that “tough decisions” will have to be made over the public finances, which face a multi-billion pound “black hole”.
In the weeks leading up to his first budget as PM, reports have emerged of areas of public spending that might be curtailed, including help targeted at pensioners.
In a typical recession, companies take fewer earnings, which makes pay fall and unemployment rise.
This, in turn, means the Treasury income from tax revenues decreases, putting pressure on public sector spending.
However, after two years of pandemic and an even longer period of stagnating wages, many workers are now demanding higher pay increases to soften the blow of inflation, which hit 10.1 percent in September.
Workers in the rail, postal and nursing industries are among those who have voted for strike action, promising further disruption to the economy in the months ahead.
Mr Sunak now faces the tough task of balancing the Government’s books with less expected revenue, while many in the public sector call for higher wage packets to ease household burdens.
At Prime Ministers’ Questions on Wednesday, he was taken to task by Sir Keir Starmer on the massive profits energy companies have raked in due to higher wholesale prices. The Labour leader said Shell – which made £8.2billion in the same period the economy began to slump – “haven’t paid a penny” of Mr Sunak’s windfall tax.
The ONS said that manufacturing production had fallen by 1.5 percent, and that the quarterly GDP was now 0.4 percent below its pre-pandemic level.
More to follow…