Britain’s economy shrank by 0.3% in August, hit by the
cost-of-living crisis and rocketing energy bills, official data showed on
Wednesday. Gross domestic product (GDP) in July was revised down to 0.1% from a
previous estimate of 0.2% and the economy was now believed to be back at its
size just before the coronavirus pandemic struck, having previously been
estimated at 1.1% above it, the Office for National Statistics said.
“The economy shrank in August with both production and
services falling back, and with a small downward revision to July’s growth the
economy contracted in the last three months as a whole,” ONS Chief
Economist Grant Fitzner said.
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Fitzner pointed to a “notable decrease” in the
manufacturing sector and a greater level than usual of maintenance in the North
Sea oil and gas sector which slowed output.
“Many other consumer-facing services struggled with
retail, hairdressers, and hotels all faring relatively poorly,” he added.
Consumer-facing services decreased by 1.8%, with the
largest fall in sports and amusement, and recreation.
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An increase in housebuilding activity offset a fall in maintenance
to leave the construction sector 0.4% larger.
However, the much larger services sector contracted by 0.1%
as a result of cuts in health spending.
In the three months to August, GDP was down 0.3%.
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Inflation in August touched 9.9%, holding close to a
40-year high as energy bills surged as a result of the Russia-Ukraine war,
worsening the UK’s cost-of-living crisis.
The ONS said that oil and gas production declined due to
more North Sea summer maintenance than usual in the month, while there were
significant declines in manufacturing.
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The report comes amid market turmoil after Britain’s latest
debt-fuelled budget, which included a costly energy price freeze.
On October 11, the International Monetary Fund (IMF)
projected a sharp slowdown for the UK economy, which it expects to decelerate
from 3.6% this year to just 0.3% in 2023.
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That was better than its forecasts for the economies of
Germany and Italy to contract next year as they feel the full force of gas
supply cuts from Russia caused by the war with Ukraine.
Britain Prime Minister Liz Truss and finance minister Kwasi
Kwarteng have promised to boost economic growth but their plan for unfunded tax
cuts sent financial markets into turmoil and has raised expectations for how
quickly the Bank of England (BoE) will push up borrowing costs.
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The central bank is also trying to slow the rise in market
interest rates which has put pension funds under severe strain. It has said it
will end its emergency bond-buying support scheme on Friday.