People shopping on Oxford Street in London. Picture date: Thursday December 29, 2022. (Photo by James Manning/PA Images via Getty Images)
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LONDON – Britain is moving closer to recession after revised figures showed the economy contracted in the previous quarter.
The U.K.’s gross domestic product (GDP) fell 0.1% between July and September, a downward revision from the previous estimate of stagnant growth, according to new data released by the Office for National Statistics on Friday.
There was also zero growth in the previous three months, the new figures showed, below the previously calculated growth of 0.2%.
Data expected in February will show whether the UK has entered a technical recession – defined as the economy contracting for two consecutive quarters.
Responding to the revisions on Friday, Chancellor of the Exchequer Jeremy Hunt stressed that “the medium-term outlook for the UK is far more optimistic than these figures suggest”.
However, analysts say this shows the UK has so far “made it through” without a recession.
“Growth is weakening and interest rates are really starting to bite, and while a recession has just been avoided so far, there is no guarantee that it will be avoided in 2024,” said Richard Carter, head of fixed income research at Quilter Cheviot, in a note.
“Inflation has fallen more than expected and interest rate forecasts point to more easing than previously thought in 2024, but the damage may already be done. “Surely Rishi Sunak’s promise to stimulate the economy is now in serious doubt,” he said.
This could further increase pressure on the Bank of England to cut interest rates earlier than planned to support a weaker economy.
Better-than-expected data released on Wednesday showed inflation hit 3.9% in November, fueling speculation that the central bank could cut interest rates in the spring.
Prime Minister Rishi Sunak has made growing the economy one of his key promises this year. Downing Street said this would be achieved if GDP rose quarter-on-quarter in the three months to December.
A short-term interest rate cut would be a victory for Sunak’s government as Britain enters an election year.
Still, BOE Governor Andrew Bailey has insisted interest rates may need to stay “higher for longer” after keeping them steady at 5.25% at the final policy meeting of the year.