A recession by the end of the year is even more likely after statisticians said the economy shrank by more than initially thought in the third quarter.
The Office for National Statistics revised its figure for growth in gross domestic product, the primary measure of output, to a contraction of 0.3 per cent in three months to September. Its original estimate was for a 0.2 per cent contraction.
The change for its final reading of GDP for the quarter reflects downgrades to the statistics office’s production and construction output estimates.
Darren Morgan, director of economic statistics at the ONS, said: «Our revised figures show the economy performed slightly less well over the last year than we previously estimated, with manufacturing and electricity generation notably weaker. As a result, household incomes continued to fall in real terms, albeit at a slower rate than in the previous two quarters, while household spending fell for the first time since the final Covid-19 lockdown in the spring of 2021».
Households have faced a deterioration in the value of their pay packets over the past year because of inflation. The ONS said households’ disposable income dropped by 0.5 per cent in the third quarter, marking the fourth consecutive quarter of decline.
The UK is expected to meet the criteria for a formal recession, defined as two consecutive quarters of negative growth, by the end of the year. Figures for the final quarter, which covers October to December, will be published by the statistics office in February.
The latest official estimates, published last week, show that the economy grew by 0.5 per cent in October. Still, economists believe the brief return to growth is unlikely to stop Britain from sinking into recession this winter.
The main driver is inflation, which, at its highest level in decades, has squeezed household budgets and weakened demand for goods and services.
Gabriella Dickens, a senior UK economist at the Pantheon Macroeconomics consultancy, said the figures showed that the UK would continue to underperform compared with the rest of the G7, which includes the United States, France, Germany, Italy, Canada and Japan.
«The national accounts confirm that the UK was the only G7 economy in which Q3 GDP still was below its pre-Covid level,» she said. «The expenditure breakdown, meanwhile, shows that the UK’s underperformance largely reflects weakness in households’ real spending, which was 3.2 per cent lower in Q3 than in Q4 2019, compared to an unweighted average increase of 1.6 per cent across the other G7 economies».
Dickens said that household spending had been subdued in Britain because of the relatively muted recovery in employment and more considerable price increases and that households in Britain have been less willing to reduce their saving rate than those overseas.
It was expected. 0.2 per cent was a very optimistic contraction estimate. I and many others knew that this number would be higher. It can be felt in the market.
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