UK economy shrinks in third quarter as recession looms

Britain’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 contracted 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.

The Bank of England last week said the UK economy was set to also contract in the current final quarter, meaning the economy was in a recession.

The BoE also warned that Britain’s economy could remain in recession until the middle of 2024.

Friday’s data comes ahead of a fresh budget announcement from the government of new Prime Minister Rishi Sunak on Thursday as he looks to bring much needed political and economic stability to the UK.

Following Friday’s data, finance minister Jeremy Hunt said he was “under no illusion that there is a tough road ahead — one which will require extremely difficult decisions to restore confidence and economic stability”.

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Preparing the country for tax hikes and spending cuts in next week’s budget, he added that the Conservative government needed to “balance the books and get debt falling”.

“There is no other way,” he said, if Britain was to “achieve long-term sustainable growth”.

As well as recession, Britain is facing a cost-of-living crisis with UK inflation at a four-decade high above 10 percent.

The country faces a winter of strike action as workers in the public and private sectors demand pay increases to match inflation and shortfalls to wage rises seen in recent years.

“The sharp rise in energy and other consumer prices has contributed to a squeeze on household finances, which is expected to have pushed the UK economy into a recession from the third quarter of this year,” Yael Selfin, chief economist at KPMG UK, said following Friday’s data.

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The third-quarter contraction was in part owing to a national public holiday to mark the funeral of Queen Elizabeth II, which resulted in the closure of a large number of businesses, the ONS said.

Kwasi Kwarteng, appointed Chancellor of the Exchequer after Truss succeeded Boris Johnson, made a series of unfunded tax cut announcements in late September.

Kwarteng’s budget panicked the markets, sent the pound to an all-time low against the dollar and triggered emergency buying of UK government bonds by the BoE.

Truss was forced to resign in mid-October after less than 50 days in office — becoming the shortest-serving prime minister in Britain’s history.