All eyes on Autumn budget as GDP contracts in Q3

All eyes on Autumn budget as GDP contracts in Q3

Andrew McRae

The latest figures from the Office for National Statistics (ONS) have shown that the UK economy contracted 0.2% in Q3 between July and September.

The UK’s GDP fell by 0.6% in September alone. The information and communication sector was the worst affected and services output dropped 0.8%, causing the greatest impact on the economic situation.

The Federation of Small Business’ (FSB) Scotland policy chair Andrew McRae commented: “Though the onset of a recession doesn’t come as a great shock, that doesn’t make it any less worrying.”

Mr McRae continued: “All eyes will therefore be on next week’s Autumn Statement and the Scottish Government’s Budget next month – they must not shy away from pro-growth measures. We want to ensure that small businesses aren’t burdened with additional taxes that will deplete their already low reserves or onerous regulations that will stand in the way of them running their business.

“Decision makers at all levels must unlock the potential of small businesses to survive the tough winter ahead and lead the way to economic recovery in the spring.”

Martin Beck, chief economic advisor to the EY ITEM Club, said: “With an additional bank holiday in September and spending power under pressure from high inflation, a poor performance from GDP was almost a given. In practice, a 0.6% month-on-month fall in output was worse than the consensus prediction of a 0.4% decline.

“However, while September’s performance meant the economy shrank 0.2% in Q3, the quarterly outturn was less severe than expected, reflecting upward revisions to output in July and August. But Q3’s drop was the first since lockdown afflicted Q1 2021 and left the economy 0.4% smaller than its pre-pandemic size in Q4 2019.

“Moreover, consumer spending fell 0.5% in Q3, compared with a 0.2% rise in the previous quarter, indicating the impact of cost-of-living pressures. Business investment also fell, although there was a big positive contribution to GDP from net trade.

Mr Beck concluded: “Q4 should enjoy a normal complement of working days, delivering a mechanical boost to GDP. But with consumers and businesses under pressure from high inflation, rising interest rates and energy bills, and the housing market facing a correction – the EY ITEM Club expects output to continue to fall over the first half of next year.

“If the Government tightens fiscal policy aggressively in the near-term in the Autumn Statement on November 17, the mild recession that the EY ITEM Club anticipates could become a more serious downturn.”

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