The UK economy shrank in the latest quarter, official figures show – marking the first step in a long recession expected in the year ahead.
A country will not officially be in recession until the economy contracts for two quarters in a row, but the Bank of England forecasts Britain to be in one by the end of the year.
Gross Domestic Product (GDP) shrank by 0.2 per cent between July and September, compared to growth of 0.2 per cent in the previous three months.
The Office for National Statistics said GDP had fallen by 0.6 per cent in September, in part due to the slowdown in activity due to the Queen’s funeral.
Chancellor Jeremy Hunt said there wasa a “tough road ahead”, but claimed the economy has the “fundamental resilience” to recover in the long-term.
Blaming international factors for the crisis, Mr Hunt added: “We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.”
But Labour’s shadow chancellor Rachel Reeves said today’s figures were “another page of failure in the Tories’ record on growth”.
She said: “Britain’s unique exposure to economic shocks has been down to a Conservative-led decade of weak growth, low productivity and underinvestment and widening inequality.”
The Bank of England’s most recent forecast said the UK may be headed for an eight-quarter recession lasting until the middle 2024 – the longest since records began in the 1920s.
However, the Bank itself cautioned that this would only happen if it raises interest rates to around 5.2 per cent – which the market was expecting at the time.
The central bank itself does not expect rates to go so high, which would imply the recession could be less drawn out.
Mr Hunt – who is preparing to announce spending cuts and tax rises at his 17 November autumn Budget – said he had to “grip inflation, balance the books and get debt falling – there is no other way”.
Mr Hunt is said to be planning to cut planned growth in day-to-day public spending from 3.7 per cent to as little as 1 per cent after 2025 – a squeeze that would mark a return to austerity.
The Treasury is modelling for public spending rises of between 1 and 2 per cent prior ahead of next week’s autumn Budget, according to The Times. It would cut budgets at government departments outside of the NHS because of rises well below inflation.
The TUC said the government must use next week’s autumn statement to avoid deep cuts and protect pay and public services, arguing it was the best was to ensure a recovery.
TUC boss Frances O’Grady said: “Sunak and Hunt must not repeat the mistakes of Cameron and Osborne. Tory cuts over the past 12 years have meant the slowest recovery for a century.”
Ms Revees added: “We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity.”
Speaking to broadcasters, Mr Hunt said recessions around the world were “principally, but not entirely” due to a spike in global energy prices.
The chancellor said the government had to show it had a plan to make the likely recession “shallower and quicker” and “give families some hope that we will get through to the other side with the most vulnerable protected”.
It comes as former chancellor Kwasi Kwarteng said he had told Liz Truss to “slow down” her radical economic reforms or risk being out of No 10 within “two months”.
Discussing the short-lived premiership, he attacked the then-prime minister’s “mad” decision to sack him as chancellor for implementing her own tax-cutting agenda.
Mr Kwarteng refused to apologise for the financial turmoil unleashed by his and Ms Truss’s disastrous mini-budget – and claimed the pair were not responsible for the black hole in the public finances.
The ex-chancellor told TalkTV: “The only thing that they could possibly blame us for is the interest rates and interest rates have come down and the gilt rates have come down. The black hole and structural problems are already there.”
The CBI has urged the government to “learn the lessons” of the last decade in the wake of the latest GDP figures – calling for “fiscal sustainability” and a plan for growth.
The Federation of Small Businesses said the latest figures were “dreadful news”, but said it was only one headline among “countless bits of disappointing news for small businesses … a contract which ended unexpectedly, a staff member they had to let go”.
Sterling has rose sharply this morning despite the announcement on the UK economy.
The pound was up 0.5 per cent against the dollar at $1.1748. It builds on sharp gains yesterday when the pound surged in the aftermath of lower-than-expected US inflation data.