ITV News Business Editor Joel Hill reports on the tough economic situation the UK is facing
The UK’s economy has shrunk in what experts warn could be the beginning of the longest recession since records began.
Chancellor Jeremy Hunt spoke of a "tough road ahead" as the economy contracted by 0.2% between July and September.
The Office for National Statistics (ONS) said that gross domestic product (GDP) had fallen by 0.6% in September, in part due to the Queen’s funeral.
It could be the beginning of a recession – which is defined as two quarters of shrinking GDP in a row. During these periods, companies usually make less money and unemployment rises.
Mr Hunt said the prediction that the recession had begun was "disappointing but not entirely unexpected," as he emphasised the government's plans to tackle inflation.
The reading comes just a week after the Bank of England published a caveated forecast that the UK might be headed for an eight-quarter recession – the longest consecutive recession since reliable records began in the 1920s.
However, the Bank itself cautioned that this would only happen if it raises interest rates to around 5.2% – which the market was expecting at the time.
The outlook for the UK is pretty bleak, how should the government respond?
The Bank itself said it did not expect rates to reach such a high level, which would imply that the recession could be less drawn out.
A recession has been widely forecast in the UK for a while due to the soaring prices of goods such as food and with energy soaring, partly because of the war in Ukraine.
Households up and down the country could face tax rises for years to come as Prime Minister Rishi Sunak and his chancellor look to address a "fiscal black hole" of up to £50 billion in the public finances.
Mr Hunt, who will deliver his Autumn Statement on November 17, said the UK is not immune from global economic challenges, like the impacts of the war in Ukraine and Vladimir Putin's "weaponisation of gas supplies". “I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability," he said. “But to achieve long-term sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”
In an interview with broadcasters on Friday morning, the chancellor was pressed on the likelihood of the UK entering a recession.
“Well, the Bank of England says we are likely to be in recession. This is disappointing but not entirely unexpected news,” Mr Hunt said in reply. He said the government now needs to present a plan to tackle the root causes of the shrinking economy: inflation, which is at 10.1%.
“According to the International Monetary Fund, around a third of the world’s economy is in recession this year or will be in recession next year. “And that is principally but entirely because of very high global energy prices. We are not immune to that in the UK and what we need is a plan that shows how we are going to get through this difficult period.
"If it is a recession, how are we going to make it shallower and quicker, so that we can protect businesses who are really struggling, as these figures show. “But also give families so hope that we’ll get through to the other side with the most vulnerable people protected.”
Jeremy Hunt said there is a very substantial black hole in the country's finances
Mr Hunt also appeared to reject comments made by his predecessor Kwasi Kwarteng, after he said that the new administration cannot blame Liz Truss' government for the massive black hole in the nation’s finances.
Mr Kwarteng's mini-budget spooked the markets in late September with its package of tax cuts and increased borrowing.
It triggered turbulence in the financial markets, sending the pound tumbling and forcing the Bank’s intervention.
The UK's economy also is the only G7 country yet to recover to its pre-Covid levels.Anushka Asthana reports on how urgent it is for the government to find a way out
Mr Hunt, who subsequently discarded much of Ms Truss' economic package, said there was “some choice” over the fiscal rules a government follows, but insisted that the UK had to “pay its way”. “Well, there is some choice over the rules, or the fiscal rules, that you choose to follow, but there isn’t uncertainty about a basic choice we make as a country, which is whether we’re going to pay our way," he said. “And if we don’t give that certainty to the world, what we’ll see is higher interest rates, higher inflation, more instability, and more worries for families and businesses."
Shadow chancellor Rachel Reeves said the latest GDP figures were “extremely worrying”, arguing they are a sign of the Conservative's economic record. The Labour MP said: “Today’s numbers are another page of failure in the Tories’ record on growth, and the reality of this failure is family finances crunched, British businesses left behind and more anxiety for the future. “We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity. “Britain has so much potential to grow. We have the talent. We have the capacity.”
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