UK economy shrank by 0.2%

The UK economy contracted in the third quarter of the year, official figures showed this morning, raising the prospect of a recession by the end of the year. Data from the Office of National Statistics showed the economy contracted by 0.2 per cent in the three months to September, after a 0.2 per cent expansion in the second quarter. The decline was not as deep as economists' forecasts of a 0.5 per cent decline, but another fall in the gross domestic product in the year's final three months would mean that the UK is formally in a recession. Economists and forecasters widely expect a recession to hit by the end of the year, driven by double-digit inflation, rising interest rates and a cost of living crisis.

The data suggest that the UK is the only G7 economy not to have recovered fully to its pre-Covid level. According to the Office for National Statistics, annual GDP between August and September fell by 0.6 per cent, and August's GDP figure was revised from minus 0.3 per cent to 0.1 per cent. In addition, the Queen's funeral hit economic growth in September when businesses were shut. The ONS said that about half the decline in September's GDP could be attributed to the additional bank holiday.

The drop in GDP was driven by shrinking output in the UK's dominant services sector, which accounts for about three-quarters of the economy. "The Bank of England forecast last week that the UK would enter a five-quarter recession starting this year if interest rates are maintained at 3 per cent. "Should rates rise above 5 per cent, the economy would contract until 2024, it said.

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