UK economy contracts in third quarter as recession looms
2 min read . Updated: 11 Nov 2022, 01:46 PM IST
Premium- The weak economic outlook provides a tough backdrop for next week's budget statement by finance minister Jeremy Hunt
United Kingdom's economy shrank in the third quarter, official data showed Friday, likely confirming it is already in a recession forecast to last some time. Output shrank 0.2 percent in the July-September period, following a modest rise in the second quarter, the Office for National Statistics (ONS) said in a statement. As well as recession, United Kingdom is facing a cost-of-living crisis with UK inflation at a four-decade high above 10 percent.
The gross domestic product fell 0.2%, meaning Britain is the only Group of Seven economy that has yet to fully recover from the pandemic with output 0.4% below pre-Covid levels.
The Bank of England said last week that Britain's economy was set to go into a two-year recession if interest rates rose as much as investors had been pricing. Even without further rate hikes, the economy would shrink in five of the six quarters until the end of 2023, it said.
The weak economic outlook provides a tough backdrop for next week's budget statement by finance minister Jeremy Hunt. Responding to Friday's data, he repeated his warnings of tough decisions on tax and spending in order to repair Britain's public finances and the government's credibility on economic policy after Liz Truss's brief spell as prime minister.
"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," Hunt said in a statement.
"But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way."
Prime Minister Rishi Sunak is meanwhile preparing to announce tens of billions of pounds of tax rises and spending cuts next week in an effort to plug a hole in the public finances and restore credibility following the market turmoil triggered by his predecessor Liz Truss’s proposed tax cuts.
How well the economy holds up will depend on the readiness of people to spend more of their income and draw down an estimated £200 billion of excess savings built up during the pandemic, when lockdowns restricted opportunities to spend.
*With inputs from agencies
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