UK economy on track for quarterly decline after shrinking in August

Written by on 12 October 2022

UK economy on track for quarterly decline after shrinking in August

Britain’s economy unexpectedly shrank in August as factories and consumer services firms struggled, putting the UK on track to contract overall in the third quarter, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) dropped by 0.3% between July and August, down from growth of 0.1% the previous month, which was downwardly revised from the 0.2% previous estimation.

Economists had been expecting zero growth in August.

The latest data means the economy is likely to contract overall in the third quarter, with the ONS confirming there would need to be growth of more than 1% in September to avert a quarterly decline.

It comes amid fears the UK is heading for a recession as the cost-of-living crisis takes its toll on households and businesses.

Chancellor Kwasi Kwarteng insisted the Government’s energy support package and growth plan will “address the challenges that we face”.

But the financial market turmoil sparked by his mini-budget has sent mortgage rates soaring, heaping yet more pressure on cash-strapped Britons.

The International Monetary Fund (IMF) warned on Tuesday that the UK economy could sharply reduce in 2023 as consumer spending catches up with rampant inflation and higher interest rates.

It downgraded its forecast for UK GDP growth next year to just 0.3% in 2023 from 0.5% previously pencilled in.

Mr Kwarteng said: “Countries around the world are facing challenges right now, particularly as a result of high energy prices driven by Putin’s barbaric action in Ukraine.”

“Our growth plan will address the challenges that we face with ambitious supply-side reforms and tax cuts, which will grow our economy, create more well-paid skilled jobs and, in turn, raise living standards for everyone,” he added.

The ONS said there has been a continued slowing in three-month on three-month growth, with gross domestic product (GDP) falling by 0.3% in the quarter to August.

On a monthly basis, the economy is now back to where it was before the pandemic struck, having been higher than pre-Covid levels earlier in the summer.

Grant Fitzner, chief economist of the ONS, said: “The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole.

“Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual.

“Notable decreases were also seen across much of manufacturing.”

He added: “Sports events too had a slower month after a strong July and many other consumer-facing services struggled with retail, hairdressers and hotels all faring relatively poorly.

“On the positive side, these falls were partially offset by stronger than usual summer performance from many professional services such as lawyers, accountants and architects.”

Published: by Radio NewsHub

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