UK economy unexpectedly shrinks in August as recession risk rises

Experts had been expecting economic growth to flatline in August.

The latest data means the economy is on track to contract overall in the third quarter, with the ONS confirming there would need to be growth of more than 1% in September to prevent a quarterly decline.

The Bank of England in the city of London. The latest data means the economy is on track to contract overall in the third quarter

The ONS said there has been a continued slowing in three-month on three-month growth, with gross domestic product (GDP) falling by 0.3% in the quarter to August.

It comes amid fears the UK is heading for a recession as the cost-of-living crisis takes its toll on households and businesses.

Yesterday the pound slumped again after the Bank of England governor warned that its emergency support package for the markets would end on Friday.

Earlier the Bank intervened for the second time in as many days to prevent “fire sales” of pension fund assets, amid the continuing market turmoil in the wake of Chancellor Kwasi Kwarteng’s mini-budget.

Chancellor Kwasi 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.

“That is why this Government acted quickly to put in place a comprehensive plan to protect families and businesses from soaring energy bills this winter.

“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.”

The ONS said there has been a continued slowing in three-month on three-month growth, with gross domestic product (GDP) falling by 0.3% in the quarter to August.

On a monthly basis, the economy is now back to where it was before the pandemic struck, having been higher than pre-Covid levels earlier in the summer.

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.

“Health also contributed to the decline, with a drop in the number of hospital consultations and operations.”

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.”

Jacob Rees-Mogg has insisted that parts of the economy were in a “good state” telling Sky News: “Mortgage rates have gone up for everybody who has a mortgage and I have a mortgage.”

“Any floating rate mortgages have gone up,” he continued.

Asked by host Kay Burley if his had gone up, he said: “Yes, mine has gone up.”

He also told the programme that some parts of the economy remained strong, despite the problem with inflation.

“I think the economy has some good points and some there is a difficulty.”