UK economy unexpectedly shrinks in August

LONDON: Britain’s economy unexpectedly shrank in August after slender growth the previous month, hit by the cost-of-living crisis and rocketing energy bills, official data showed Wednesday.

Gross domestic product contracted by 0.3 percent in August, weighed down by production and services, the Office for National Statistics said in a statement.

That was worse than expectations of flat growth and followed anaemic expansion of 0.1 percent in July, downgraded from 0.2 percent growth.

“The economy shrank in August, with both production and services falling back,” said ONS chief economist Grant Fitzner.

Consumer-facing services contracted by 1.8 percent, with the largest falls in sports, amusement and recreation.

“August’s drop in GDP likely marks the start of a downward trend that will continue deep into next year,” said Samuel Tombs, chief UK economist at research consultancy Pantheon Macro.

“The drop was driven by a 1.8-percent month-to-month fall in output in consumer-facing services sectors, reflecting the intense real income squeeze on households.”

Inflation in August hit 9.9 percent, holding close to a 40-year peak as energy bills rocket in fallout from the Ukraine war, in turn worsening the UK’s cost-of-living crisis.

The ONS added Wednesday that oil and gas production fell due to more North Sea summer maintenance than usual in the month, while there were notable declines in manufacturing.

The gloomy news comes amid market turmoil after Britain’s recent debt-fuelled budget, which included a costly energy price freeze.

And it also comes one day after the International Monetary Fund forecast a sharp slowdown for the UK economy, which it expects to decelerate from 3.6 percent this year to just 0.3 percent in 2023.

“Countries around the world are facing challenges right now, particularly as a result of high energy prices driven by (Vladimir) Putin’s barbaric action in Ukraine,” said British finance minister Kwasi Kwarteng, who is under fire over his controversial budget.

He added that Prime Minister Liz Truss’s government had a “comprehensive plan to protect families and businesses from soaring energy bills this winter”.

Markets have nevertheless been spooked by Kwarteng’s budget, which sent bond yields soaring and the pound tumbling — and sparked multiple bond-buying interventions from the Bank of England.