UK GDP falls in quarter three as recession looms

UK GDP fell 0.2% between July and September according to the first quarterly estimate from the Office for National Statistics (ONS), better than City forecasts for a decline of 0.5%.

The ONS said GDP fell by 0.6% in September 2022 which was affected by the bank holiday for the state funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day.

ONS director of economic statistics Darren Morgan said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.”

“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries. Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”

The ONS said the level of quarterly GDP in quarter three is now 0.4% below its pre-coronavirus (COVID-19) level.

In output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in quarter three, including falls in all 13 sub-sectors of the manufacturing sector.

In expenditure terms, real household expenditure fell by 0.5% in quarter three 2022, while there were also large positive movements in international trade flows in the third quarter.

Compared with the same quarter a year ago, the implied GDP deflator rose by 5.8%, primarily reflecting higher cost pressures faced by households.

GDP data for August was revised to show a marginal 0.1% contraction compared with an original reading of a 0.3% fall, and GDP in July was now seen as having grown by 0.3%, up from a previous estimate of 0.1%.

Tom Stevenson, investment director for Personal Investing at Fidelity International commented: “The small decline in economic activity in the July to September quarter means we are almost certainly already in recession and creates a gloomy backdrop to next week’s Autumn statement.”

“The Chancellor will be cutting spending and raising taxes at the start of a prolonged downturn and the measures he will announce will only deepen the slump.”

“A further fall in the last three months of the year will meet the definition of a technical recession – two consecutive quarters of falling output – and kick off what the Bank of England has forecast will be a two-year downturn.”

“On the face of it, this is bad news for investors in the UK stock market. But the news comes as a surprise to no-one and it has already been priced into shares.”