UK economy contracts by more than first thought in third quarter as it heads for recession

The UK economy contracted by more than first thought in the third quarter, with gross domestic product (GDP) dropping by a higher revised amount. 

GDP fell by a revised 0.3 per cent, compared to an initial estimation of a 0.2 per cent decline, fresh figures from the Office for National Statistics revealed on Thursday.

It comes as the country is headed for a recession, with a protracted downturn forecast for the second half of this year by the Bank of England.

The services sector grew its output by 0.1 per cent while the production sector dropped by 2.5 per cent, during the July to September period.

Statisticians now believe the level of real GDP in the third quarter is 0.8 per cent below its pre-coronavirus level in the fourth quarter of 2019, lower than a previous estimate of 0.4 per cent below.

It is also now thought that the economy grew less than initially estimated throughout the first half of the year.

Revisions from the ONS have revealed the UK’s growth to be 0.6 per cent in the first quarter, compared to an initial estimation of 0.7 per cent. 

Growth was put down as 0.1 per cent in the second quarter, versus an earlier estimation of 0.2 per cent.

Darren Morgan, director of economic statistics at the ONS, said that the figures revealed that the “economy performed slightly less well over the last year than we previously estimated, with manufacturing and electricity generation notably weaker.

“Household incomes continued to fall in real terms, albeit at a slower rate than in the previous two quarters, while – taking account of inflation – household spending fell for the first time since the final Covid-19 lockdown in the spring of 2021.”

Despite the gloomy statistics, UK markets shrugged off the bleak headlines on Thursday morning, with the FTSE 100 index up 38.41 points to 7535.73.

The FTSE 100 and FTSE 250 were relatively unscathed by the ONS update, “largely because a UK recession has already been priced in,” according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“The hoped-for Santa rally is running merrily through markets, but it may end up being a short-lived ride given the cost-of-living winds swirling, the confirmation that the UK is rolling into recession and worries about global economic growth,” she added.