Britain’s economy shrank unexpectedly in August contracting by 0.3% on the previous month, new figures show.
The latest figures from the Office for National Statistics (ONS) means the economy is likely to contract overall in the third quarter, meaning there would need to be growth of more than 1% in September to avert a quarterly decline.
The ONS said gross domestic product (GDP) dropped by 0.3% between July and August, down from growth of 0.1% the previous month, which was downwardly revised from the 0.2% previous estimation. Economists had been expecting zero growth in August, which means the result is worse than expected.
Grant Fitzner, chief economist of the ONS, said: “The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole.
“Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual. Notable decreases were also seen across much of manufacturing.”
He added: “Sports events too had a slower month after a strong July and many other consumer-facing services struggled with retail, hairdressers and hotels all faring relatively poorly.
“On the positive side, these falls were partially offset by stronger than usual summer performance from many professional services such as lawyers, accountants and architects.”
The International Monetary Fund (IMF) warned on Tuesday (11 October) that the UK economy could sharply reduce in 2023 as consumer spending catches up with rampant inflation and higher interest rates. It downgraded its forecast for UK GDP growth next year to just 0.3% in 2023 from 0.5% previously pencilled in.
It comes amid fears the UK is heading for a recession as the cost of living crisis takes its toll on households and businesses.
Chancellor Kwasi Kwarteng insisted the government’s energy support package and growth plan will “address the challenges that we face”, but the financial market turmoil sparked by his mini-budget has sent mortgage rates soaring, heaping yet more pressure on cash-strapped Britons. He is due to unveil his debt plan to MPs on 31 October.
Mr Kwarteng said: “Countries around the world are facing challenges right now, particularly as a result of high energy prices driven by Putin’s barbaric action in Ukraine.
“Our growth plan will address the challenges that we face with ambitious supply-side reforms and tax cuts, which will grow our economy, create more well-paid skilled jobs and, in turn, raise living standards for everyone”.
Meanwhile, Business Secretary Jacob Rees-Mogg on Wednesday urged caution in interpreting the latest figures, telling Sky News: “The previous quarters figure showed a contraction, was then revised to show economic growth. So, be very careful about how you interpret figures immediately after they’re released.
“It’s a small amount of a very large economy, but these figures are notorious for being revised afterwards.”