THE risk of a recession has risen after the UK’s economy shrank in August as factories and consumer services firms struggled, according to official figures. 

The Office for National Statistics (ONS) said gross domestic product (GDP) dropped by 0.3% between July and August, down from 0.1% the previous month, which was downwardly revised from the 0.2% previous estimation. 

Economists had been expecting zero growth in August. 

The ONS has confirmed that there would need to be growth of more than 1% in September in order to avoid a quarterly decline. 

The latest statistics strengthen the Bank of England's prediction that the UK will fall into a recession this year as the cost-of-living crisis takes its toll on households and businesses.

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Prices are rising at their fastest rate for 40 years eating into household and businesses’ budgets.

Chancellor Kwasi Kwarteng insisted the Government’s energy support package and growth plan will “address the challenges that we face”.

However, the financial turmoil sparked by the Chancellor’s heavily criticised mini-budget has sent mortgage rates soaring, heaping more pressure on cash-strapped Britons. 

Reacting to the news, the SNP have warned that the Prime Minister and Kwarteng’s “wreckonomics” are driving the UK into a recession. 

The party’s shadow chancellor Alison Thewliss said: “As the Scottish Government prepares to publish the economic case for independence, the UK’s wreckonomic approach is making the case for us day by day.

“With both Labour and the Liberal Democrats now pro-Brexit parties, this latest analysis from the ONS shows we face years of Brexit damage, deep austerity and mounting debt. 

“That is why the only way to keep Scotland safe from Westminster control is by choosing independence, which will allow us to chart our own path as a strong, economically stable nation within the European Union.”

The International Monetary Fund (IMF) warned on Tuesday that the UK economy could sharply reduce in 2023 as consumer spending catches up with rampant inflation and higher interest rates. 

It downgraded its forecast for UK GDP growth next year to just 0.3% in 2023 from the 0.5% which was previously pencilled in. 

Kwarteng said: “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.”

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The ONS said there has been a continued slowing in three-month-on-three-month growth, with GDP falling by 0.3% in the quarter to August. 

On a monthly basis, the economy is now back to where it was before the pandemic struck, having been higher than pre-Covid levels earlier in the summer.

Grant Fitzner, chief economist of the ONS, said: “The economy shrank in August with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole.

“Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual.

“Notable decreases were also seen across much of manufacturing.”

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.”

The Bank of England has already predicted the economy will fall into recession towards the end of the year and has forecast a contraction of 0.1% in the third quarter.

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GDP narrowly grew in the second quarter, edging up by 0.2% over the three months to June after being revised upwards.

The latest ONS data showed manufacturing output dropped 1.6% in August, while the services sector also saw a decline, down 0.1%.

Output in consumer-facing services tumbled by 1.8% in August after growth of 0.7% in July, according to the figures.

The construction sector was the only one of the three main parts of the economy to see growth in August, with 0.4% expansion.