November 14, 2022: -The U.K. economy is contracting by 0.2% in the third quarter of the year 2022, which signals what could be the start of a prolonged recession.

The preliminary estimate shows that the economy performed better than anticipated in the third quarter, even after the downturn. Economists are projecting a contraction of 0.5%, according to Refinitiv.

The contraction does not show a technical recession characterized by two-quarters negative growth following the second quarter’s 0.1% contraction, which was revised to a 0.2% increase.

“In output terms, to slow down in the quarter for the services, production, and construction firms; the services sector is slowing to flat output on the quarter driven by a decrease in consumer-facing services, while the production sector decreased by 1.5% in Quarter 3 2022, including came down in all 13 sub-sectors of the stating sector,” the Office for National Statistics reported.

The Bank of England last week forecasted the country’s most prolonged recession since records began, suggesting the downturn that started in the third quarter will likely deep into the future years and send unemployment to 6.5% over the coming two years.

The country faces a historical price of living, surging energy, and tradable goods. The central bank imposed its most significant hike to interest rates for many years as policymakers attempted to tame double-digit inflation.

The ONS added that the group of quarterly GDP in the third quarter was 0.4%, less than its pre-Covid level in the last quarter of 2019. Therefore, the figures for September, in which U.K. GDP decreased by 0.6%, were affected by the public leave for the state funeral of Queen Elizabeth II.

U.K. Finance Minister Jeremy Hunt will state a new fiscal policy agenda in the coming week, which is expected to count substantial tax rises and spending decreases. The New Prime Minister’s difficult decisions” must be made to stabilize the country’s economy.

“While some headline inflation numbers may start to look better from here on, we anticipated prices to remain elevated for some time, which adds more pressures on demand,” stated George Lagarias, chief economist at Mazars.

“Should the upcoming week’s budget prove indeed ‘difficult’ for taxpayers, as anticipated, consumption will be further suppressed, and the Bank of England should start to ponder the effect of a demand shock on the thrift.”