THE UK economy unexpectedly shrunk between July and September, as the Chancellor Jeremy Hunt dismissed fears recession is looming.
The Office for National Statistics (ONS) said it now thinks gross domestic product (GDP) fell by 0.1% instead of remaining flat at 0%.
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GDP measures the value of goods and services produced in the UK and also estimates the size and growth of the economy.
The latest revised figures spark fears the UK economy could be heading for recession.
A country is technically in recession after two consecutive three-month periods of a shrinking economy.
However, the Chancellor Jeremy Hunt dismissed fears the outlook for the UK economy was bleak.
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Mr Hunt said: “The medium-term outlook for the UK economy is far more optimistic than these numbers suggest.
“We’ve seen inflation fall again this week, and the OBR (Office for Budget Responsibility) expects the measures in the autumn statement, including the largest business tax cut in modern British history and tax cuts for 29million working people, will deliver the largest boost to potential growth on record.”
Separate figures released by the ONS this week show the rate of inflation slowing to 3.9% in November.
It means prices are still rising put at a slower pace.
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The Bank of England has kept the base rate, a lever used to control inflation, at 5.25% in its last two meetings.
But while the measure is designed to control inflation, it also discourages people from spending, which can have a negative impact on GDP.
It could be brought down to encourage shoppers to spend more and boost GDP, and money markets are betting there will be five interest rate cuts next year.
Mr Hunt has also hinted that more tax cuts could be coming next year as the inflation outlook improves.
The ONS said today’s revised figures were due to a 0.2% fall in the services sector between July and September.
Industries including film production, engineering and design and telecommunications did not perform as well.
However, these badly performing sectors were partially offset by a 0.4% increase in the construction industry and a 0.1% increase in the production sector.
Commenting on the figures, Darren Morgan, ONS direct of economic statistics, said: “The latest data from both our regular monthly business survey and VAT returns show the economy performed slightly less well in the last two quarters than our initial estimates.
“The broader picture, though, remains one of an economy that has been little changed over the last year.
“The latest VAT data, which takes a little time to receive and process means we now estimate the economy showed no growth in the second quarter, with weaker performances from smaller businesses, particularly those in both hospitality and IT than first shown.
“We also now estimate the economy contracted slightly in the third quarter, when we previously reported no growth, with later returns from our business survey showing film production, engineering & design and telecommunications all performing a little worse than we initially thought.”
The official figures from the ONS on economic growth are backwards looking, which means they are for previous months rather than in real-time.
A fall in GDP for the three months from October to December would signal a technical recession. A first estimate will be released on February 15, 2024, though that could also be revised up or down in future.
What does it mean for my money?
A healthy economy is one that is growing and not in recession so the latest figures will be bad news for households.
A country is in recession if there are two consecutive quarters of Gross Domestic Product (GDP) falling, with the year split into four three-month quarters.
The economy remained unchanged in the three months to June, which means a recession was avoided.
But the figures for quarter three mean if the following three month period sees the UK economy contract again, we will be classed as being in recession.
Recessions are bad news because it usually means jobs will be lost and wages will stall.
It can cause businesses to go into administration or bust too.
This, in turn, means the government gets less tax, which could mean cuts to public services and benefits such as Universal Credit. Tax rates might go up too.
The UK last went into recession in 2020 after the coronavirus pandemic hit, shutting down large parts of the economy.
How to protect your finances
If you’re worried about your finances, there are steps you can take to try and keep your cash safe.
Having an emergency savings pot is helpful in times of high inflation, to help cover any outgoings that might have increased unexpectedly.
You might consider asking for a pay rise at work, but there are no guarantees your company is in a position to offer one.
Be sure to make savings where you can – shop around for better deals on your car and home insurance, as well as broadband and mobile phone.
Save money by going to a cheaper supermarket, shopping for own-brand rather than premium products, and looking out for yellow-sticker bargains.
Make a budget and check your bank statements for any forgotten subscriptions you might be wasting money on.
When money is tight, it can be tempting to ignore debts – but this will only make your financial situation worse.
Stay on top of what you owe and always repay priority debts.
There are also plenty of organisations where you can seek debt advice for free.
These include:
- National Debtline – 0808 808 4000
- Step Change – 0800 138 1111
- Citizens Advice – 0808 800 9060
You should also check what benefits you are eligible for.
Entitledto’s free calculator works out whether you qualify for various benefits, tax credits and Universal Credit.
If you don’t want to register, consumer group MoneySavingExpert.com and charity StepChange both have benefits tools powered by Entitledto’s data that let you save your results without logging in.
There is also emergency funding available for struggling households, which is dished out by local councils.
The Household Support Fund is designed to help those in most need with payments towards the rising cost of food, energy, and water bills.
Help available varies, but you could get free cash, food vouchers, and help for bills like rent and energy.
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You could also get similar help from your council under the welfare assistance scheme.
