Jeremy Hunt points to 'tough road ahead' as economy shrinks

ITV News Business Editor Joel Hill reports on the tough economic situation the UK is facing

And so it begins. According to the ONS, Gross Domestic Product (GDP) fell by 0.6% in September and by 0.2% between July and September.

If the Bank of England is right the UK is already in recession, the only unknowns are how deep it will be and how long it will last.

Chancellors tend to avoid saying “The R-Word” in much the same way that actors refuse to utter “Macbeth” but Jeremy Hunt more or less threw in the towel this morning, referring euphemistically to “a tough road ahead”.

Jeremy Hunt said the Bank of England says we are likely to be in recession

Half of the fall in activity in September was down to the Queen’s funeral - when many businesses closed - but the trend is clear enough.

Real household expenditure fell -0.5% in Q3. Incomes are being squeezed and tumbleweed is starting to blow through more of the economy.

The ONS calculates the fall in GDP across the third quarter would have been roughly 0.1% had the bank holiday not happened.

Rampant inflation is the reason output is falling. Spending power is being crushed by higher prices.

In the months ahead higher interest rates and higher taxes will lead to further enforced belt-tightening.

The UK is the only one of the G7 economies to contract in Q3 - Japan has yet to report its numbers - and the only G7 country not to have seen GDP fully recover to pre-Covid levels.

Not for the first time, the UK has the appearance of a straggler but this could change in 2023 when many advanced economies will likely find themselves in recession. The truth is the short-term outlook in many places is grim.

The UK economy has been hit by a rapid succession of economic shocks - Brexit, Covid, the war in Ukraine - and each has left us poorer.

Now is not a great time to be hiking taxes and cutting public spending but next week the chancellor is determined to do precisely these things in order to “balance the books and get debt falling”.

“There is no other way,” argues Hunt. It’s certainly true that the calamitous decisions his predecessor made have left him less room for manoeuvre. Investors have shown they will brutally punish anything that looks like fiscal incontinence.

Jeremy Hunt’s great challenge will be repairing the public finances without deepening the downturn.

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