UK economy shrinks as recession risk looms

Britain's economy shrank by a less severe than expected 0.2 per cent in the three months to September, according to official data which is likely to represent the start a lengthy recession.

A Reuters poll of economists had pointed to a bigger contraction of 0.5 per cent in gross domestic product in the third quarter.

The Bank of England said last week that Britain's economy was set to go into a two-year recession if interest rates rose as much as investors had been pricing.

Even without further rate hikes, the economy would shrink in five of the six quarters until the end of 2023, it said.

In September alone, when the funeral of Queen Elizabeth was marked with a one-off public holiday that shut many businesses, Britain's economy shrank by 0.6 per cent, a bigger fall than a median forecast for a 0.4 per cent contraction in the Reuters poll.

But gross domestic product data for August was revised to show a marginal 0.1 per cent contraction compared with an original reading of a 0.3 per cent shrinkage, and GDP in July was now seen as having grown by 0.3 per cent, up from a previous estimate of 0.1 per cent.

The weak economic outlook provides a tough backdrop for next week's budget statement by finance minister Jeremy Hunt.

Responding to Friday's data, he repeated his warnings of tough decisions on tax and spending in order to repair Britain's public finances and the government's credibility on economic policy after Liz Truss's brief spell as prime minister.

"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," Hunt said in a statement.

"But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way."