Economy shrinks unexpectedly in August by 0.3%, Office for National Statistics figures show
The economy unexpectedly shrank in August, contracting by 0.3% on the previous month.
The growth in July has also been revised downwards, from the previously recorded 0.2% to 0.1%.
The Office for National Statistics released its latest reading on the UK’s performance as the government frets over the prospect of recession ahead, given the toll placed on demand by the cost of living crisis.
The result for August is worse than expected, as no growth rather than shrinking was anticipated.
It is likely that the contraction will result in a sharper period of slowdown in September.
“August’s negative out-turn should be followed by a more marked drop in September’s output as the extra bank holiday for the Queen’s funeral will have added to the downwards pressure on activity,” Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, said.
Commentators now suspect the UK is nearing a recession.
“UK economy teetering on the edge of recession,” Yael Selfin, chief economist at KPMG UK, said.
“The ongoing squeeze on household finances continues to weigh on growth, and likely to have caused the UK economy to enter a technical recession from the third quarter of this year.”
Mr Thiru added: “The government has needlessly risked a longer recession with any boost from the energy package likely to be dwarfed by a sustained squeeze on UK output from persistently high inflation, punishing interest rate rises and acute financial market turbulence.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “August’s drop in GDP likely marks the start of a downward trend that will continue deep into next year.”
The ONS figures were dismissed as estimates by Jacob Rees-Mogg, the business secretary, who told Sky News that “figures that are released immediately are very often revised”.
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Jacob Rees-Mogg on Kay Burley
Action by the Bank of England to tame inflation, through successive interest rate increases, is adding to the cost burden for borrowers.
The Bank’s tightening has placed its mandate to control inflation at odds with the agenda of the new Truss administration, which has set a target for annual economic growth of 2.5%.
The mini-budget last month, which contained energy bill help for households and businesses along with a series of tax cuts, prompted turmoil on financial markets.
The resulting crisis of credibility forced down the value of the pound and raised government borrowing costs to such an extent that the Bank had to intervene.
The International Monetary Fund warned on Tuesday that the government should ensure its tax and spending plans are in line with the Bank of England’s inflation-fighting remit.
In other words, the priority should be tackling inflation rather than adding to the price problem through tax giveaways to achieve economic growth.
The IMF welcomed the prospect of an earlier-than-expected debt plan from Kwasi Kwarteng, the chancellor.
That will now be delivered to MPs on 31 October and contain independent analysis from the Office for Budget Responsibility.
Responding to this morning’s announcement, Mr Kwarteng said the UK was facing global challenges that his government’s growth plan will address.
“Countries around the world are facing challenges right now, particularly as a result of high energy prices driven by Putin’s barbaric action in Ukraine,” he said.
“That is why this government acted quickly to put in place a comprehensive plan to protect families and businesses from soaring energy bills this winter.
“Our Growth Plan will address the challenges that we face with ambitious supply-side reforms and tax cuts, which will grow our economy, create more well-paid skilled jobs and in turn raise living standards for everyone.”
Baroness Michelle Mone has broadened her attack on her political critics, accusing Conservative leader Kemi Badenoch of using “inflammatory” and “reckless” language that could prejudice a police investigation into her role in the awarding of PPE contracts.
A day after she wrote to Sir Keir Starmer, accusing the government of pursuing a vendetta against her, the former Conservative peer responded to comments by Ms Badenoch following a High Court ruling that a company linked to Baroness Mone’s husband must repay £122m received for surgical gowns.
The court found that PPE Medpro, founded by her husband Doug Barrowman, was in breach of contract with the Department of Health and gave it two weeks to repay the sum.
While not a director of the company, Baroness Mone used her political contacts to introduce PPE Medpro to the government’s “VIP fast-lane” at the start of the pandemic, and a family trust of which her children are beneficiaries received £29m of the profits.
A separate criminal investigation by the National Crime Agency (NCA) is ongoing, and assets linked to the couple worth £75m have been frozen while it continues.
In a series of radio interviews, Ms Badenoch criticised Baroness Mone, accusing her of bringing shame on the Conservative Party and calling for her to step down from the House of Lords.
“Where people do wrong, they should be punished,” she said. “They should face the full force of the law and this is something that I very strongly believe in,” she said.
“And as the prosecution against her continues, they should throw the book at her for every single bit of wrongdoing that has taken place.”
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Baroness Mone ‘should resign’
In a letter from her private office, Baroness Mone accuses the Tory leader of being ignorant of the facts and calls out a series of other Conservative politicians who introduced companies to the VIP lane.
“I was shocked to the core to read about your inflammatory language on BBC Radio yesterday calling for me to resign from the House of Lords,” she writes.
“You are commenting on a live criminal investigation that could prejudice the outcome of any trial, and in so doing, you are reportable to the attorney general for breach of and contempt of court. Does no one ever tell you these things before you and your colleagues make reckless statements in the public domain?”
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Baroness Mone goes on to say the NCA investigation has “nothing to do with PPE Medpro and the contracts”.
“The case theory of the NCA investigation is that I somehow misled the Conservative government about my alleged concealed involvement and ended up pocketing a lot of money,” she writes. “Well I’m sorry to disappoint you, but it isn’t true.”
She also says the Conservative government knew of her involvement and names former health secretary Matt Hancock, Lord Agnew, Lord Feldman and Lord Chadlington as being among 51 “mostly Conservative peers and MPs” who introduced providers to the VIP lane.
“So Kemi, my role was exactly the same as all other Conservative MPs and peers who were trying to help provide PPE… if I have done wrong, then so have all the others in the VIP lane. In which case, you should be calling out for them to resign as well. That’s if you manage to work out what it is they are supposed to have done wrong.”
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The High Court says a company linked to Mone breached a government contract of nearly £122m
She concludes by saying she has no wish to rejoin the Lords as a Conservative peer when her leave of absence ends, “that’s assuming there still is a Conservative Party before the next General Election”.
The letter comes as an online petition calling for Baroness Mone to step down from the Lords, launched by the Covid-19 Bereaved Families for Justice, attracted 60,000 signatures in 24 hours.
The Conservative Party has been approached for comment.
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