LONDON: Britain’s econ­omy unexpectedly shra­nk in the third quarter and flatlined in the previous three months, official data showed on Friday, raising fears of a recession before an election due next year.

The downbeat news deli­vers a blow to Conservative Prime Minister Rishi Sun­ak, who trails opposition Labour leader Keir Star­mer in the polls despite a sharp slowdown of inflation.

Gross domestic product (GDP) contracted 0.1 per cent between July and September on sliding services output, down from a prior estimate of zero, the Office for National Stati­stics (ONS) said in a statement.

Activity was hit by the Bank of England’s aggressive interest-rate hikes, which are aimed at curbing elevated inflation and easing a cost-of-living crisis.

The ONS added that the economy turned flat in the second quarter, slashing its previous estimate of 0.2pc expansion.

That sparked speculation over a potential recession which is defined as two straight quarters of negative economic growth.

“The fall in real GDP in the third quarter may mean that the mildest of mild recessions started,” noted Capital Economics analyst Ashley Webb.

“But whether or not there is a small recession, the big picture is that we expect real GDP growth to remain subdued throughout 2024.”

Inflation eases

Sunak was buoyed on Wednesday as separate ONS data showed inflation slowed sharply to the lowest level in more than two years.

The Consumer Prices Index hit 3.9pc in Nove­mber from 4.6pc in the previous month, attaining the weakest level since Septe­mber 2021.

The rate is nevertheless almost double the BoE’s target of 2.0pc.

Yet core inflation — which strips out food and energy costs — eased only slightly to 5.2pc in Nove­mber from 5.6pc in October.

The BoE last week froze its key interest rate at a 15-year peak of 5.25pc — but warned that it will remain elevated to tackle stubbornly high consumer prices.

Published in Dawn, December 23rd, 2023

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