UK economy shrank by 0.3% in August, ONS figures show

Experts expected economic growth to flatline in August

The British economy contracted in August, shrinking by 0.3 per cent on the previous month.

The Office for National Statistics released its latest reading on the UK's performance as the government fears the prospect of recession ahead, given the toll placed on demand by the cost of living crisis.

The latest data means the economy is on track to contract overall in the third quarter, with the ONS confirming there would need to be growth of more than 1 per cent in September to prevent a quarterly decline.

The ONS said there has been a continued slowing in three-month growth, with gross domestic product (GDP) falling by 0.3 per cent in the quarter to August.

Action by the Bank of England to tame inflation through successive interest rate increases is adding to the cost burden for borrowers.

Business secretary Jacob Rees-Mogg told Sky News on Wednesday that the 0.3 per cent contraction was “a small amount in a very large economy” and said that “lots of figures come out that get revised later”.

“The previous quarters figure showed a contraction, was then revised to show economic growth. So, be very careful about how you interpret figures immediately after they’re released,” the business secretary said.

Chancellor Kwasi Kwarteng added: “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.

”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.”

The International Monetary Fund criticised the UK government again, warning that Britain was on course for a sizeable slowdown in growth from 3.6 per cent this year to 0.3 per cent in 2023 but said its forecasts had been made before Kwarteng delivered his mini-budget on 23 September.

“The fiscal package is expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation,” the IMF said. Financial markets expect Threadneedle Street to raise interest rates – currently at 2.25 per cent – by at least 0.75 percentage points at its next meeting in early November.

Grant Fitzner, chief economist of the ONS, said the contraction was driven by a decrease in both production and services.

“Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual,” Mr Fitzner said. “Notable decreases were also seen across much of manufacturing.

“Health also contributed to the decline, with a drop in the number of hospital consultations and operations.”

He added: “Sports events too had a slower month after a strong July and many other consumer-facing services struggled with retail, hairdressers and hotels all faring relatively poorly.

“On the positive side, these falls were partially offset by stronger than usual summer performance from many professional services such as lawyers, accountants and architects.”

On Monday the chancellor announced he was bringing forward the date of his debt-cutting plan, which will be published alongside new forecasts from the Office for the Budget Responsibility, to 31 October from 23 November.

The pound plunged again after governor of the Bank of England Andrew Bailey warned that its emergency support package for the markets would end on Friday.

Earlier on Tuesday, the Bank intervened for the second time in as many days to prevent “fire sales” of pension fund assets, amid the continuing market turmoil in the wake of Chancellor Kwasi Kwarteng’s mini-budget. The Bank expanded its programme of daily bond purchases to also include inflation-linked debt.

It cited a “material risk” to British financial stability with “the prospect of self-reinforcing ‘fire sale’ dynamics”