The UK economy shrank in the third quarter, according to new data that raises fears of a recession.

Gross domestic product is estimated to have fallen by 0.1% between July to September, revised down from a first estimate of no growth, the Office for National Statistics said.

The economy shrank by 0.3% in October and means the fourth quarter could also show a contraction.

There was a 0.2% fall in the services sector in the third quarter, which offset a 0.4% increase in construction output and a 0.1% increase in the production sector.

The data will increase pressure on the Bank of England to cut interest rates early next year to avoid a deeper economic downturn.

However, UK retail sales volumes rose by 1.3% in November compared with the prior month, boosted by heavily discounted Black Friday deals.

The change followed zero growth in October, which was revised from a fall of 0.3%, said the ONS.

Commenting on the GDP figures, Chancellor Jeremy Hunt was in defiant mood, saying: “The medium-term outlook for the UK economy is far more optimistic than these numbers suggest.

“We’ve seen inflation fall again this week, and the OBR expects the measures in the Autumn Statement, including the largest business tax cut in modern British history and tax cuts for 29 million working people, will deliver the largest boost to potential growth on record.”

Data released earlier this week showed that inflation fell to 3.9% in November, which raised hopes of an early cut in interest rates.

Other data shows Germany is the worst performing G7 economy since the pandemic, growing by just 0.3%. Britain slipped back behind France to be the next worst performer following today’s downward revisions to growth.

Market report

The FTSE 100 ended the shortened session 2.78 points higher at 7,697.51 as traders set aside the downward revision in UK growth.

JD Sports Fashion fell 5.3% following a downbeat update from Nike, while Harbour Energy was up 5.5% in response to its $11.2 billion acquisition of Wintershall Dea’s oil and gas assets from Germany’s BASF and the investment firm LetterOne.

Harbour Energy,  which is the largest oil and gas producer in the North Sea, will be transformed from a $2 billion UK-focused oil and gas producer into an international player with projects in at least nine countries.

The deal includes Wintershall’s oil and gasfields in Norway, Germany, Denmark, Argentina, Mexico, Egypt, Libya and Algeria, but not its former business in Russia. Harbour’s oil and gas production will rise from about 190,000 barrels a day to more than 500,000 b/d when the deal completes.

Enquest has sold a stake in its Bressay field in the North Sea in a deal worth up to £46 million. Rockrose is taking a 15% holding in the site to the east of Shetland as well as part-ownership of a floating, production, storage and offloading vessel. 

Enquest will receive an initial £34.75 million with the remaining £11.25m coming from future cash flows from the field.