The UK economic system contracted by greater than beforehand estimated within the third quarter and lagged additional behind different superior economies, as households struggled amid excessive inflation.
UK output fell 0.3 per cent between the second and third quarter, a bigger contraction than preliminary estimates of 0.2 per cent, information revealed by the Workplace for Nationwide Statistics confirmed on Thursday.
Within the third quarter, the UK economic system was 0.8 per cent under the extent within the remaining quarter of 2019, earlier than the pandemic. That was worse than an earlier estimate of a 0.4 per cent hole as a result of revisions to earlier quarters as nicely.
Different G7 economies, against this, have regained the bottom misplaced throughout the pandemic. Within the three months to September, the US economic system was 4.3 per cent bigger than within the fourth quarter of 2019, whereas eurozone output was up 2.2 per cent.
Gabriella Dickens, UK economist on the consultancy Pantheon Macroeconomics, warned that the UK economic system would proceed to underperform different G7 international locations.
“We count on Britain to undergo the deepest recession amongst main superior economies in 2023, because of the severity of the headwinds from each financial and financial coverage,” she mentioned. Final month, the OECD additionally forecast the UK can be the worst performer within the G20 bar Russia over the following two years.
The ONS revised down the UK economic system’s enlargement within the third quarter in contrast with the identical interval in 2021 to 1.9 per cent, from 2.4 per cent in earlier estimates.
“Our revised figures present the economic system carried out barely much less nicely over the past yr than we beforehand estimated, with manufacturing and electrical energy era notably weaker,” mentioned Darren Morgan, ONS director of financial statistics.
A big a part of the UK’s underperformance comes from struggling households. The ONS confirmed that actual households’ disposable earnings, which is what households have obtainable to spend after taking inflation under consideration, fell 0.5 per cent between the second and third quarter. It was the fourth consecutive fall as wages had not saved up with inflation.
After accounting for inflation, family spending fell by 1.1 per cent within the third quarter, the primary fall because the begin of final yr when the nation was in lockdown.
The family saving ratio, the common share of earnings that’s saved, rose to 9 per cent within the third quarter from 6.7 per cent within the earlier three months, pointing to shoppers being cautious amid rising financial dangers.
Whereas a lot of the rise mirrored a change in pension entitlements associated to the rise in gilt yields throughout autumn, the non-pension saving ratio additionally ticked up, which represented an “surprising headwind,” based on Martin Beck, chief financial adviser to the EY ITEM Membership.
Many economists consider that the autumn within the third quarter marks the beginning of a protracted recession. Thomas Pugh, economist at audit, tax and consulting agency RSM UK, mentioned the economic system is perhaps no bigger in 2025 than it was in 2019, earlier than the pandemic.
“The upshot is that the UK is nearly definitely already in a year-long recession which will show to be deeper than that skilled within the early Nineteen Nineties,” mentioned Pugh.