Gross domestic product fell by 0.2%, compared with an increase of 0.2% in the previous quarter, the Office for National Statistics (ONS) said.
UK activity ground to a halt in the third quarter as inflation and the cost of living crisis hit the economy, plus a bank holiday for Queen Elizabeth II’s funeral in September. Gross domestic product (GDP) fell by 0.2% against a 0.2% increase in the previous quarter, the Office for National Statistics (ONS) said in its monthly activity report on Friday.
The fall was particularly significant in September (-0.6%) due to the national holiday for the funeral of Elizabeth II, which resulted in the closure of a large number of businesses. Manufacturing activity fell in the quarter, while service activity was unchanged. The ONS cites rising costs as a factor weighing on business output, with inflation running at around 10% in the country.
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The end of September was also marked by financial turmoil triggered by the previous government’s massive and unfunded fiscal measures led by former Prime Minister Liz Truss. They led to a plunge in the pound to a historic low and a rise in interest rates on long-term UK debt, impacting corporate and household credit conditions, especially as the Bank of England is already in the midst of a cycle of raising interest rates to dampen inflation.
The Bank of England (BoE) continued last week to the biggest increase in the main rate since 1989: 0.75 points to 3%. The BoE, meanwhile, has painted a bleak economic picture, with eight consecutive quarters of economic contraction starting in mid-2022, the longest recession Britain has known, a prospect that could lead it to end rate tightening sooner than expected. All these factors undermine the confidence of consumers, investors and business leaders.
A difficult road
Samuel Tombs, of Pantheon Macro, notes that the drop in activity in September is more significant than expected by analysts. “The UK economy is once again at the bottom of the G7 pack, weighed down by its monetary and fiscal policy and significant long-term damage from Covid and Brexit“, he comments. This summer in particular, many sectors of the economy have been disrupted by the lack of workers, partly due to an exit from the labor market of over 50s or people with long-term illnesses, many linked to the consequences of Covid. This lack of labor was also attributed to Brexit, which makes it difficult for European workers to come to the UK.
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“We do not escape the global difficulties of high inflation and slow growth, largely due to illegal warfrom Russia in Ukraine and restrictions on Russian gas supplies that have driven up energy prices and inflation, commented Chancellor of the Exchequer Jeremy Hunt. “I have no illusions about the difficult road ahead, which will require extremely tough decisions to restore confidence and economic stability.“, he added.
“To achieve long-term growth, we must curb inflation, balance the books and reduce debt“, he claimed, displaying a line of budgetary orthodoxy that is raising fears of a return to austerity in the country. The minister is due to present a budget proposal next week that will include government spending cuts and tax increases. Labor chief economist Rachel Reeves called the GDP figures “extremely worrying“.
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