UK recession might be under way after economy shrinks in Q3

FILE PHOTO: People walk over London Bridge looking at a view of Tower Bridge in the City of London financial district in London, Britain, October 25, 2023. REUTERS/ Susannah Ireland/File Photo

LONDON — Britain’s economy might now be in a recession according to data which showed output shrank in the July-to-September period, shortly after finance minister Jeremy Hunt suggested the Bank of England might cut interest rates to help boost growth.

Gross domestic product contracted by 0.1% in the third quarter, the Office for National Statistics said on Friday.

It had previously estimated that the economy showed no change compared with the previous three months and economists polled by Reuters had mostly expected another unchanged reading.

READ: Britain’s economy shrinks as BoE readies new rates decision – ONS

The ONS also said economic output in the second quarter was now estimated to have shown no growth, a downwards revision from a previous estimate of 0.2% growth.

However, separate data showed retail sales in November jumped by much more than expected, increasing by 1.3% from October, boosted by discount sales.

Sterling rose against the dollar and the euro after the data releases.

Finance minister Hunt, whose Conservative Party is lagging far behind the opposition Labour Party in opinion polls ahead of an expected election next year, said the outlook for the economy was not as bad as the updated official figures suggested.

“The medium-term outlook for the UK economy is far more optimistic than these numbers suggest,” he said in a statement.

READ: Sluggish UK economy staged partial bounceback in August

Separately, in an interview with the Financial Times published late on Thursday, Hunt took the rare step of commenting on the BoE’s interest rate decisions.

“There’s a reasonable chance that if we stick to the course we’re on, we’re able to bring down inflation, the Bank of England might decide they can start to reduce interest rates,” Hunt told the newspaper.

The ONS said fresh tax data showed smaller businesses in particular had struggled in the second quarter, especially hospitality and information technology, and the broader picture for the economy was one of little change over the last year.

The boost to retail sales volumes reflected heavy discounting during the Black Friday sales promotions but sales fell over the three months to November and were still below their pre-pandemic levels, the statistics office said.