London Daily

Focus on the big picture.
Friday, Sep 25, 2026

Things can only get even tougher, Chancellor warns as recession looms

Things can only get even tougher, Chancellor warns as recession looms

Recession on way as the big slowdown hits growth
Chancellor Jeremy Hunt steeled Britain for a wave of tax rises and swingeing spending cuts on Friday as new data showed that the nation was heading towards recession.

Preparing the ground for next week’s Autumn Statement, Mr Hunt warned that “extremely difficult decisions” were needed to restore confidence in the UK’s economy as soaring inflation bites into household budgets and rising interest rates choke off growth.

“It’s not going to be easy,” Mr Hunt said. “There are going to be some very difficult choices. I’ve used the word eye watering before, and that’s the truth.”

The Chancellor’s bleak assessment came after the Office for National Statistics said the UK’s output fell 0.2 per cent in the three months from July to September.

It dropped 0.6 per cent in September alone, although the fall was exaggerated by the impact of the extra bank holiday for the Queen’s funeral. Friday’s figures do not mean Britain is already in recession because the technical definition requires two consecutive quarters of falling GDP.

However, it is increasingly likely that the fourth quarter will see another dip following the surge in interest rates triggered by Kwasi Kwarteng’s disastrous mini-budget at the end of September, combined with rising energy costs, the cost-of-living crisis and plummeting consumer confidence.

Mr Hunt and Prime Minister Rishi Sunak will attempt to repair that damage on Thursday when they are expected to set out around £22 billion of tax rises and £33 billion of spending cuts to plug a fiscal black hole of about £55 billion.

As well as tax rises, the Chancellor is reported to be considering freezing day-to-day spending on public services from 2025-2028 to save £27 billion a year. But that has raised fears of a fresh wave of austerity, crippling already strained public services and a prolonged wave of strike action from public sector workers.

This week nurses voted to strike for the first time over pay. The Bank of England last week projected a two-year recession — the longest for a century — lasting until summer 2024 as it lifted the base rate to three per cent. The Bank warned that the UK economy faced “a very challenging outlook” although it said the recession would be relatively shallow.

The recession will not be confirmed until well into 2023 when the GDP figures for the fourth quarter are published by the ONS. It would be the third of the 21st century following the slumps caused by the global financial crisis and pandemic. Policymakers had hoped that Britain’s economy would bounce back strongly from the deep Covid-era falls in economic activity caused by three lockdowns and other restrictions.

However, this has been snuffed out by factors including global supply chain snarl-ups, spiking energy prices made worse by the war in Ukraine, Brexit problems and rapidly rising interest rates around the world to curb inflation. The lower than expected US inflation figure yesterday raised hopes that the worst of the cost-of-living crisis could be over.

Mr Hunt pointed to challenges being faced by other major economies and added: “What we need is a plan that shows how we are going to get through this difficult period. If it is a recession, how we make it shallower and quicker.”

Labour’s shadow chancellor Rachel Reeves blamed the Conservatives for their botched management of the economy. She said: “The reality of this failure is family finances crunched, British businesses left behind and more anxiety for the future.”

The ONS said the quarterly fall, which was slightly smaller than predicted by some City economists, was driven by manufacturing, which saw widespread declines across most industries. Services were flat overall.

Consumer-facing industries fared badly, with a notable fall in retail. Yael Selfin, chief economist at KPMG UK, said: “The current downturn is likely to last until the end of 2023, during which GDP is expected to shrink by 1.6 per cent.”
Newsletter

Related Articles

0:00
0:00
Close
Vistry Cuts Profit Outlook as Losses Deepen and Private Home Sales Weaken
Reported Assaults on Great Britain’s Railways Rise Sharply
Far-Right Activist Daniel Thomas Arrested After Channel Dinghy Slashing
Ukrainians in Britain Face Greater Homelessness Risk as Host Payments Are Cut
Scottish Drug Deaths Rise as Synthetic Opioids Spread
UK Diesel Prices Approach Record High as Energy Costs Intensify
UK Food and Drink Trade Deficit Widens to Record £21 Billion
Britain’s Largest Planned AI Supercomputer Delayed by Power Grid Constraints
NHS Boards Impose Minimum Waits of Up to Two Years for ADHD and Autism Assessments
Police Arrest Far-Right Activist After Migrant Dinghy Slashed in English Channel
Synthetic Opioids Drive Renewed Rise in Scotland’s Drug Deaths
Reported Assaults on Britain’s Railways Rise 20% in a Year
Vistry Cuts Profit Forecast as Losses Weigh on UK Housebuilder
TikTok Drops Appeal and Accepts £12.7 Million UK Data Protection Fine
Russell Group Urges UK Government to Drop Proposed International Student Levy
Legal & General Plans to Cut 1,000 Jobs by Mid-2027
UK Health Bill Would Remove Independent Governors From NHS Foundation Trusts
BMA Raises Patient Safety Concerns Over Advanced Practitioners Filling Doctor Rotas
UK’s Largest AI Supercomputer Delayed by Power Supply Constraints
NHS Orders Security Cameras in Neonatal Units Following Thirlwall Inquiry
Post-Brexit Trade Barriers Cost UK Economy Up to £6.5 Billion a Year, Analysis Says
UK Parliament Launches Inquiry Into Bank of England Monetary Policy Independence
Global Bond Selloff and Higher Oil Prices Narrow UK Budget Options
UK Prime Minister Andy Burnham Addresses UN and Holds First Meeting With Donald Trump
Royal Navy Commandos Complete Maritime Operations Training With US Navy SEALs
Vistry Profit Warning Adds to Concerns Over UK Housebuilding Conditions
UK Commits £343 Million to Major Expansion of Community Mental Health Services
Five Eyes Partners Back UK-Led Campaign Against Global Fraud Networks
UK Businesses Gain Full Access to £13 Trillion CPTPP Trading Bloc
UK Allocates Nearly £10 Billion for Council, Social and Affordable Housing
Chancellor John Healey Unveils Deregulation Drive to Accelerate UK Investment and Growth
Prime Minister Andy Burnham Sets Out Post-Brexit Foreign Policy Vision at United Nations
UK Reassesses Chagos Arrangements as Burnham Seeks New Path on Diego Garcia
Key Trends to Watch
Government’s “Buy British” Procurement Push Targets More Domestic Jobs and Industrial Capacity
Scotland Launches Four-Year Flood Resilience Programme With New Community Funding
Low-Income Renters Face Record Gap Between Housing Support and Private Rents
UK and US Test Torpedo Launch From British Undersea Drone in Defence Technology Milestone
Britain Pushes Artificial Intelligence Security Onto United Nations Security Council Agenda
Treasury Committee Defends Office for Budget Responsibility Independence Amid Fiscal Pressure
Scotland Records Eleven Per Cent Rise in Drug-Use Deaths as Cocaine and Nitazenes Drive Concern
Welsh Government Sets Four-Year Programme Around Health, Living Costs, Jobs and Housing
Study Finds Most People With High Blood Pressure in England Remain Undiagnosed
Britain Plans First National Workplace Health System to Tackle Economic Inactivity
England to Introduce Vocational GCSEs in Major Secondary Education Reform
UK Elevates Climate and Nature Risks to National Security Priority
Andy Burnham and Donald Trump Put Trade at Centre of First Major Bilateral Meeting
Andy Burnham and Ursula von der Leyen Push Ahead With Closer UK-European Union Economic Ties
UK Government Borrowing Jumps to Eighteen Point Three Billion Pounds Ahead of October Budget
Piddington Residents Back Symbolic Independence Vote Over Asylum Accommodation Plan
×