UK economy shrinks in third quarter to become weakest G7 performer

The UK economy shrank 0.2% in the third quarter and 0.6% in September, making it the weakest performer in the G7 although  Japan has yet to report.

One notable contributor was the Bank holiday to mark the Queen's funeral which contributed to the fall in economic output. 

The country's services sector was flat, while all 13 manufacturing subsectors recorded falls in output.

The construction sector continues to show modest growth, although the outlook is less positive.

Nicholas Hyett, equity analyst, Wealth Club, said: "Were it not for the disruption caused by the Queen's funeral - during which many businesses shut - it's just possible the UK economy could have scraped a positive performance in Q3. 

But despite that perhaps surprisingly strong result, the Q3 GDP announcement is full of warning signs. Inflation is squeezing consumer spending, inward investment has fallen and supply constraints are restricting activity in the manufacturing and construction sectors. The mini-budget turmoil only kicked in right at the end of the period - and that is likely to have left Q4 off to a poor start. 

With consumers battening down the hatches for a tough winter and the government proposing substantial tax rises and spending cuts, we think the economy will shrink again in Q4 - officially pushing the UK into recession. With the Bank of England predicting recession could stretch well into late 2023 or even beyond, the Queen's funeral may end up marking the start of an "annus horribilis" for the whole of the UK." 

Andrew Aldridge, Partner at Deepbridge Capital, said: "Today's downbeat results today of -0.2% for Q3 is certainly not good news for financial advisers and investors, though the Bank of England gave due warning of economic contractions earlier this month. The figures this morning also mean the first step towards a recession that could become official in the new year. 
 
Economic and fiscal policymakers are scrambling to restore confidence in the economy and public markets, and this only underlines the potential in private markets and venture capital as an alternative investment in tough times. This investment avenue can offer steady long-term growth opportunities, with unparalleled tax reliefs available via the Enterprise Investment Scheme."