The UK is at risk of recession after the economy contracted

The UK faces the risk of recession after revised figures showed the economy contracted between July and September.

Gross domestic product, which measures the health of the economy, contracted 0.1% after previous estimates indicated growth was flat.

Meanwhile, there was zero growth between April and June, after I first calculated it rose 0.2%.

A recession is usually defined as when the economy shrinks for three months – or quarters – in a row.

There have been concerns about weak economic growth in the UK for some time, but the country has managed to avoid a recession so far.

Ashley Webb, a British economist at Capital Economics, said the revised figures “could mean that the mildest of the moderate recessions began” in the third quarter between July and September.

But regardless of whether there is a “mini-recession,” the bigger picture is that economists expect economic growth to remain “weak throughout 2024,” he added.

Economic growth is a good thing for most people because companies become more profitable, tend to create more jobs, and companies can pay employees more money.

But when growth is stagnant, or when a country is in recession, people generally tend to feel worse off.

During recessions, unemployment rates can rise as companies cut spending, and graduates and school leavers may find it difficult to get their first job.

With next year likely to see general elections, the economy is expected to be a major battleground for all parties.

Chancellor Jeremy Hunt said the “medium-term outlook” for the UK economy was “far more optimistic than these figures suggest”.

Earlier this week, data showed that inflation – which measures the rate at which prices rise – slowed more than expected to 3.9% in the year to November, down from 4.6% the previous month.

Until recently, the Bank of England was raising interest rates in an attempt to slow inflation.

But the better-than-expected inflation rate has raised speculation that the bank may cut its key interest rate in the spring of next year from the current level of 5.25%. Although the bank said at its last two interest rate setting meetings, it was “too early” to consider lowering borrowing costs.

Hunt said that with inflation falling, the measures he outlined in his autumn statement “will provide the biggest boost ever to potential growth”.

But Rachel Reeves, the shadow chancellor, said the Prime Minister had “failed to grow the economy”.

Rishi Sunak has made growing the economy one of his key pledges. Downing Street said the promise would be kept if the economy was larger in the three-month period from October to December 2023 than it was in the previous three months.

It will not be clear until February whether the UK has entered or avoided a recession when figures for the October-December quarter are published.

The Office for Budget Responsibility, the government's official economic forecasting body, said it expected growth of 0.1% for the final three months of the year.

The latest GDP data from the Office for National Statistics (ONS) suggests that rising interest rates are impacting consumer spending, which has slowed over this period.

This is because while higher interest rates can reduce inflation and benefit savers, they can also affect economic growth by making it more expensive for consumers and businesses to borrow money.

The Office for National Statistics said real household disposable income was expected to rise by just 0.4% between July and September, after growth of 2.3% over the previous three months.

It also said it had revised its figures for the three months after additional information showed that companies in film production, engineering and design as well as telecommunications “performed slightly worse than we thought”.

She added that there was a “weaker performance” from small companies, especially those operating in the hospitality and information technology sectors.

Darren Morgan, director of economic statistics at the Office for National Statistics, told the BBC's Today programme, that the “broader picture” is that the economy “has been largely stable over the past year”.

The latest figures mean the UK has one of the weakest growth rates among other advanced economies in the G7 when comparing pre- and post-Covid data.

Compared to October and December 2019 – the last quarter before the onset of Covid and the UK lockdown in March 2020 – the UK economy is now 1.4% higher than its pre-pandemic level.

The UK was 1.8% ahead of pre-Covid levels. Germany is the worst performing economy based on this measure.

“So, after overtaking France in the G7 rankings in the second quarter, the UK is again lagging behind France and all other countries except Germany since the pandemic,” Webb said.

Separate data from the Office for National Statistics showed that retail sales grew more than expected last month, with trading boosted by Black Friday discounts.

The amount of goods people bought increased by 1.3% in November compared to the previous month.

Black Friday fell on November 24 this year, but retailers noted that the early start of the sales event as well as wider discounts helped business. Sales at non-food stores increased by 2.3%.

John Edgar, chief executive of department store chain Fenwick, said Black Friday had “turned into Black November for many retailers”, which he did not think was “a good thing”.

“We never went down that road,” he said. “I think some people have taken similar views over time and moved away from that kind of broader discounting.”

Sales at the beginning of December were slower than expected, but incremental business has picked up in the past two weeks, with perfumes and handbags selling well and Jellycat soft toys “flying off the shelves,” Edgar said.