Fears that the UK has fallen into recession have increased after official figures were revised showing the economy contracted slightly in the July-September period.
The assessment that gross domestic product (GDP) fell 0.1% in the third quarter – a decline from the previous estimate of no growth – will be a blow to Rishi Sunak, who has promised to keep the economy growing as it should One of his five pledges has promised voters ahead of an expected general election next year.
The Office for National Statistics (ONS) said much of the revision was due to poorer performance than previously assessed by small businesses, film production, engineering and design, and telecommunications and the IT sector.
Second-quarter GDP was also revised down to zero growth from an earlier estimate of 0.2% growth, leaving the economy largely stagnant for the year.
An economy is considered to be in a technical recession after two consecutive quarters of contraction in GDP, and a further contraction in the fourth quarter would push the UK into this category.
GDP graph
Chancellor Jeremy Hunt said he believes the economy is close to recovery: “The medium-term outlook for the UK economy is far more optimistic than these figures suggest.”
“We have seen inflation and the OBR fall again this week [Office for Budget Responsibility] “Expects that the measures contained in the Autumn Statement, including the biggest corporate tax cut in modern British history and tax cuts for 29 million workers, will deliver the biggest growth boost ever.”
His Labor colleague Rachel Reeves dismissed Hunt's analysis, saying the latest figures were an example of Sunak's history of failure as prime minister. “He failed to beat Liz Truss, he failed to cut waiting lists, he failed to stop the boats and now he has failed to stimulate the economy,” the shadow chancellor said.
“Thirteen years of economic failures under the Conservatives have left working people worse off, with higher bills, higher mortgages and higher prices in stores.”
City analysts agreed that the UK economy's already weak performance this year was weaker than previously thought, despite a stronger rise in consumer spending than previous estimates.
They also estimate that the Bank of England's 14 interest rate hikes in the last two years, which took borrowing costs from 0.1% to 5.25%, have placed greater pressure on the business sector and household spending than before assumed.
Some sectors that suffered in part from strikes in the third quarter, such as film production, may recover in the fourth quarter, but the Chancellor is likely to be concerned that delays or cancellations of major infrastructure projects such as HS2 have hit the engineering sector.
A decline in private sector IT spending compared to previous estimates is also a worrying trend, as companies need to invest in technology to improve sluggish productivity in the UK.
Separate figures for November retail sales provided a boost, beating the City's forecasts of a 1.3% decline and recording a modest 0.1% increase from a year earlier, following a 0.3% rise since October. Black Friday sales proved better than the city forecast, with discounts on furniture, carpets and other household items luring shoppers back to the high street.
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But retail analyst Nick Bubb said he remained skeptical that the ONS had a good handle on trends in retail spending, which other surveys showed remained weak heading into the holidays.
The weaker GDP data came a day after Hunt told the Financial Times: “If we stick to the course we are on, we can bring inflation down and the Bank of England may decide to start cutting interest rates next.” ” Year.
Martin Beck, chief economic adviser at EY Item Club, said GDP was dealt a major blow after the third-quarter business investment estimate was cut to 3.2% from 4.2%.
He said the downturn would likely impact the central bank, forcing it to cut interest rates early next year. “The Bank of England [is likely to] move away from its hawkish rhetoric, meaning interest rates could be cut sooner and more significantly than many had expected.”
With a rate cut next year expected to boost consumer spending, the economy could recover in 2024. “So a worse-than-expected performance this year should be offset by better prospects for 2024 and 2025,” he said.
Household concerns about the economic outlook were reflected at the start of the year in a rise in the savings rate, which rose to 10.1% in the third quarter, up from 9.5% in the second quarter, as incomes rose faster than spending.
Darren Morgan, ONS director of economic statistics, said small businesses filing lower-than-expected VAT returns had helped force the ONS to revise its figures.
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