The UK economy is shrinking at the start of a feared prolonged recession
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The UK economy contracted in the three months to September at the start of what is likely to be a prolonged recession, adding to the challenges for Chancellor Jeremy Hunt as he braces for tax hikes and spending cuts.
Official data on Friday showed the UK economy contracted 0.2 percent in the third quarter, less than analysts had expected for a 0.5 percent contraction in a Reuters poll.
This is the first drop in GDP since early 2021, when the UK imposed tough restrictions to combat Covid-19. It comes at a time when families and businesses are facing a severe cost of living crisis.
The size of the UK economy has become much smaller than it was before the pandemic, and it is the only economy within the Group of Seven that has not fully recovered from the recession that caused it.
The Resolution Foundation said that while the decline was smaller than investors feared, it put Britain on the path to the fastest return to recession since the mid-1970s.
Commenting on Friday’s data, Hunt reiterated his warning that tough tax and spending decisions are needed.
“I am fully aware that there is a difficult road ahead of us – one that will require very tough decisions to restore confidence and economic stability,” he said in a statement.
“But to achieve long-term and sustainable growth, we need to control inflation, balance the budget, deleverage…there is no other way,” he added.
The Bank of England said last week that the UK economy would enter a two-year recession if interest rates rose as much as investors had expected.
He noted that even without further rate hikes, the economy will contract in five of the six quarters through the end of 2023.
The Office for National Statistics said the economy contracted 0.6 percent in September alone, as many businesses shut down after declaring a one-day public holiday at Queen Elizabeth’s funeral. This beats expectations in a Reuters poll of a 0.4 percent contraction and is the largest since January 2021, when there was a shutdown due to Covid-19.
But August GDP data was revised to show a modest 0.1 percent decline, compared with a 0.3 percent decline in the baseline reading.
The July data was also revised to show GDP growth of 0.3 percent, compared to a previous estimate of 0.1 percent.
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