The British economy contracted in the third quarter of this year, according to official data published today, which raised fears that the country faces the risk of recession before the elections scheduled for next year.
This bad news is a blow to Conservative Prime Minister Rishi Sunak, who is ahead of opposition Labor Party leader Keir Starmer in opinion polls despite the sharp slowdown in inflation.
The Office for National Statistics said in a statement that gross domestic product contracted by 0.1% between July and September due to a decline in services production, down from a previous estimate of zero.
Economic activity was affected by the strong increases in interest rates approved by the Bank of England (the central bank) to reduce high inflation and alleviate the cost of living crisis.
The Office for National Statistics added that the economy stabilized in the second quarter, lowering its previous estimate of growth of 0.2%.
This has raised speculation about a possible recession, defined as two consecutive quarters of negative economic growth. Capital Economics analyst Ashley Webb noted, “The decline in real GDP in the third quarter may mean that the mildest of moderate recessions have begun. But whether there is a mini-recession or not, we expect real GDP growth to remain… Weak throughout 2024.”
Separate data from the Office for National Statistics last Wednesday showed that inflation slowed sharply to the lowest level in more than two years. The Consumer Price Index recorded 3.9% in November, compared to 4.6% in the previous month, which is the weakest level since September 2021.
However, this rate remains more than twice the Bank of England’s target of 2%. Core inflation, which does not include food and energy costs, fell only slightly to 5.2% in November from 5.6% in October.
Last week, the Bank of England froze the key interest rate at 5.25%, its highest level in 15 years, but warned that it would remain high to address high consumer prices.
The central bank increased interest rates 14 times to stop inflation. These increases lead to a decline in economic activity because commercial banks pass on higher borrowing costs to businesses and consumers.
