# UK economy on brink of recession as it shrinks in August Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-12 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: UK Facing Recession as Economy Shrinks Unexpectedly Meta Description: Britain's economy is heading into recession as data shows unexpected shrinkage, challenging PM Liz Truss's growth promises amidst inflation impact. URL: https://financedigest.com/uk-economy-on-brink-of-recession-as-it-shrinks-in-augusthtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-12t082509z2lynxmpei9b0edrtroptp4britain-economy-1736815039765-compressed.jpg) By William Schomberg and Andy Bruce LONDON (Reuters) – Britain’s economy looks set to go into recession as data showed it unexpectedly shrank in August, underscoring the challenge for Prime Minister Liz Truss to make good on her promises to speed up growth. Weakness in manufacturing and maintenance work in North Sea oil and gas fields contributed to a 0.3% fall in gross domestic product from July, and the report also showed how a jump in inflation was hitting consumers. A [Reuters poll](https://www.financedigest.com/ecb-to-go-big-again-on-oct-27-with-75-bps-rate-hike-reuters-poll.html "ECB to go big again on Oct. 27 with 75 bps rate hike: Reuters poll") of economists had pointed to zero growth. July’s increase in output was revised down to 0.1% from a previous estimate of 0.2%, and in the three months to August GDP fell 0.3%, its first decline [since early](https://www.financedigest.com/first-quarter-dash-for-cash-largest-since-early-2020-bofa.html "First quarter ‘dash for cash’ largest since early 2020 -BofA") 2021 when the country was mired in the coronavirus crisis. The ongoing squeeze on household finances continues to weigh on growth, and likely to have caused the UK [economy to enter a technical recession](https://www.financedigest.com/german-economy-expected-to-skirt-recession-economy-ministry-report.html "German economy expected to skirt recession – economy ministry report") from the third quarter of this year,” Yael  Selfin, chief economist at KPMG UK, said. The economy was now believed to be [back at its size just before the pandemic](https://www.financedigest.com/as-who-pandemic-pact-talks-begin-poor-countries-on-back-foot.html "As WHO pandemic pact talks begin, poor countries on back foot"), having previously been estimated at 1.1% above that, the Office for National Statistics said. Manufacturing fell by 1.6% from July and more maintenance than unusual in the [North Sea](https://www.financedigest.com/offshore-crews-to-strike-on-bps-north-sea-installations-says-unite.html "Offshore crews to strike on BP’s North Sea installations, says Unite") hit the mining and quarrying sector which includes oil and gas. It slumped by 8.2%. Many other consumer-facing services struggled, with retail, hairdressers and [hotels all faring](https://www.financedigest.com/london-flight-hotel-fares-surge-ahead-of-queens-funeral.html "London flight, hotel fares surge ahead of Queen’s funeral") relatively poorly,” ONS Chief Economist Grant Fitzner said. GDP in September is likely to be weakened by a one-off public holiday to mark the funeral of [Queen Elizabeth](https://www.financedigest.com/uks-prince-harry-and-wife-meghan-will-attend-celebrations-for-queen-elizabeth.html "UK’s Prince Harry and wife Meghan will attend celebrations for Queen Elizabeth"). Further ahead, Britain’s [economy looks set to slow sharply as surging inflation hits](https://www.financedigest.com/uk-economy-set-for-smaller-hit-in-2023-than-previously-feared-imf.html "UK economy set for smaller hit in 2023 than previously feared – IMF") households and forces the Bank of England to raise interest rates quickly, even as activity stagnates. Samuel Tombs, an economist with Pantheon Macroeconomics, said around one-third of households no longer had meaningful savings and the 30% with a mortgage were likely to [reduce expenditure as borrowing costs](https://www.financedigest.com/cobots-in-the-financial-workplace-reducing-costs-attracting-talent-and-enhancing-sustainability.html "Cobots in the financial workplace: Reducing costs, attracting talent and enhancing sustainability") went up. The combination of the protracted [hit to real incomes from mortgage](https://www.financedigest.com/uk-mortgage-approvals-hit-lowest-since-june-2020.html "UK mortgage approvals hit lowest since June 2020") refinancing, the usual lags between changes in corporate sentiment and spending decisions, and the constraints macro policymakers now face suggests that the recession won’t end until late 2023 at the earliest,” Tombs said. The International Monetary [Fund said on Tuesday it expected British](https://www.financedigest.com/british-ev-startup-arrival-gets-300-million-funding-aims-to-slow-cash-burn.html "British EV startup Arrival gets 0 million funding, aims to slow cash-burn") GDP to grow in 2023 but only by 0.3%. That was stronger than its forecasts for the [economies of Germany and Italy to shrink next year](https://www.financedigest.com/global-economy-seen-facing-a-challenging-year-eurochambres.html "Global economy seen facing a challenging year -Eurochambres") as they feel the full force of gas supply cuts from Russia caused by the war with Ukraine. Truss and finance minister Kwasi Kwarteng have promised to speed up [economic growth but their plan](https://www.financedigest.com/uae-plans-long-term-economic-ties-with-israel-despite-political-strains.html "UAE plans long-term economic ties with Israel despite political strains") for unfunded tax cuts sent financial markets into turmoil and has raised expectations for how quickly the BoE will push up borrowing costs. The central [bank is also trying to slow the surge in market interest rates](https://www.financedigest.com/bank-of-englands-mann-doubles-down-on-backing-for-rate-hikes.html "Bank of England’s Mann doubles down on backing for rate hikes") which has put pension funds under severe strain. It has said it will [end its emergency bond-buying support](https://www.financedigest.com/european-stocks-find-support-at-end-of-volatile-week.html "European stocks find support at end of volatile week") scheme on Friday. However, amid calls from the funds for a deadline extension, the Financial Times on Wednesday cited three sources as saying the BoE had [signalled privately to lenders that it was prepared to continue the emergency programme beyond Friday if market](https://www.financedigest.com/markets-start-signalling-fed-may-be-going-too-far-amundi.html "Markets start signalling Fed may be going too far – Amundi") conditions demanded it. (Reporting by William James and William Schomberg; editing by John Stonestreet) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---