UK economy is WEAKER than previously thought as recession is found to be deeper than estimated

The UK economy contracted by more than first thought between July and September and growth has been weaker than estimated, according to a grim set of official figures – as Britain is widely expected to be heading for recession.

The Office for National Statistics (ONS) said gross domestic product (GDP) fell 0.3 per cent in the third quarter of 2022 – worse than the 0.2 per cent decline initially estimated.

The ONS said the economy also grew less than first estimated throughout the first half of the year, with revisions showing the UK eked out growth of 0.6 per cent in the first quarter and 0.1 per cent in the second quarter.

The ONS has previously said growth stood at 0.7 per cent and 0.2 per cent in those quarters respectively.

The Office for National Statistics ( ONS ) said gross domestic product (GDP) fell 0.3 per cent in the third quarter of 2022 – worse than the 0.2 per cent decline initially estimated. 

The ONS said the economy also grew less than first estimated throughout the first half of the year, with revisions showing the UK eked out growth of 0.6 per cent in the first quarter and 0.1 per cent in the second quarter.

The ONS has previously said growth stood at 0.7 per cent and 0.2 per cent in those quarters respectively.

Experts predict the economy to contract again in the final quarter of 2022, which would see the UK enter a recession – defined as two quarters or more in a row of falling output – with forecasts that it will remain in contraction throughout 2023 as the cost of living crisis hits hard.

And in 2021, GDP growth is now shown to be weaker in the third and fourth quarters – expanding by a revised 1.7 per cent and 1.5 per cent respectively.

The ONS said the level of GDP is now estimated to be 0.8 per cent below where it was before the pandemic struck, downwardly revised from the previous estimate of 0.4 per cent below.

Experts predict the economy to contract again in the final quarter of 2022, which would see the UK enter a recession – as defined by two quarters or more in a row of falling output – with forecasts that it will remain in contraction throughout 2023 as the cost of living crisis hits hard.

Economists expect GDP to shrink by 0.3 per cent in the fourth quarter of 2022, followed by contractions of a similar size for both the first and second quarters of 2023.

The latest figures also show the impact of rocketing inflation on families, with household disposable income down by 0.5 per cent in the quarter.

Household spending dropped by 1.1 per cent after inflation is taken into account – the first fall since January to March last year.

Darren Morgan, director of economic statistics at the ONS, said: ‘Our revised figures show 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.’

A breakdown of the data shows a steeper decline in manufacturing and construction output than first thought in the third quarter, down by 2.8 per cent and 0.2 per cent respectively.

Electricity, gas steam and air conditioning supply contracted by 2.1 per cent, with the ONS saying this ‘might reflect a bigger impact of rising prices on energy consumption’.

Samuel Tombs at Pantheon Macroeconomics said: ‘The national accounts confirm that the UK was the only G7 economy in which third quarter GDP still was below its pre-Covid level.’

He added: ‘Looking ahead, the UK likely will continue to underperform; we expect Britain to suffer the deepest recession among major advanced economies in 2023, due to the severity of the headwinds from both monetary and fiscal policy.

‘We expect a 2 per cent peak-to-trough fall in GDP, leading a year-over-year decline of 1.5 per cent in 2023.’

ONS data also out on Thursday showed Britain’s underlying current-account deficit – the difference between the value of the goods and services the UK imports and the goods and services it exports – narrowed to £32.5 billion in the third quarter, down by £900 million on the previous three months.