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Recession risk rises as economy unexpectedly shrinks

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The UK economy unexpectedly shrank in August, strengthening predictions that it will fall into a recession.

The surprise 0.3% drop came as factories and consumer-facing businesses struggled, according to official figures.

Analysts thought the economy would stall in August but not shrink as costs mount for businesses and households.

Prices are rising at their fastest rate for 40 years, eating into people’s budgets, and outpacing growth in pay.

In normal times, a country’s economy grows and on average, people become slightly richer as the value of the goods and services it produces – its Gross Domestic Product (GDP) – increases.

But sometimes their value falls, and a recession is usually defined as when this happens for two three-month periods – or quarters – in a row, and it marks a sign the economy is performing badly.

The Bank of England has previously said that it expects the UK to fall into a recession by the end of the year.

The drop in the monthly figure for August was driven by a sharp decline in manufacturing and maintenance work, which slowed down the oil and gas sector, the ONS said.

It marked a fall from July, when the UK economy grew by 0.1%.

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