The UK economy shrinks in August as the cost of living crisis hits

The UK economy beat expectations and contracted in August as the cost of living crisis hit household budgets and businesses.

Gross domestic product fell 0.3 percent between July and August, according to data released by the Bureau for National Statistics on Wednesday.

Economists polled by Reuters had not expected monthly changes.

In the three months to August, production fell 0.3 percent compared to the previous three months, also below analysts’ expectations.

Industrial production shrank 1.8 percent between July and August and services fell 0.1 percent.

ONS chief economist Grant Fitzner said part of the drop in industrial production was due to the drop in oil and gas production caused by summer maintenance in the North Sea.

He added that health has also contributed to the fall in GDP as the number of hospital consultations and surgeries has decreased.

Sporting events also had a slower month after a strong July, while many other consumer-facing services struggled, with retail, hairdressers and hotels all performing relatively poorly.

Commenting on the GDP data, Chancellor Kwasi Kwarteng pointed to the rising energy prices caused by Russia’s invasion of Ukraine and expressed confidence that the government’s plan would “grow our economy”.

On Tuesday, the International Monetary Fund downgraded the economic outlook for the UK, forecasting growth of 0.3 percent next year, down from 3.6 percent this year.

Brian Coulton, chief economist at ratings agency Fitch, expects a deeper downturn, with the economy set to contract 1 percent in 2023, reflecting market turmoil and the prospect of higher interest rates after the government’s big unfunded tax cuts announced last month.

Robert Alster, chief investment officer at investment firm Close Brothers Asset Management, said that “a lot will depend on what the Chancellor says in next month’s budget” as the Treasury looks to boost confidence in Britain’s debt sustainability .

“If they are not successful, financial conditions will remain tight and likely weigh on growth,” he added.