The economy contracted by 0.3% in August, from a revised growth of 0.1% in July, driven largely by a drop in manufacturing and maintenance work.

The data showed that the UK is edging closer to a recession, which the Bank of England predicted would happen by the end of the year.

Total production fell by 1.8% after a fall of 1.1% in July and was the main contributor to the fall in GDP. The manufacturing industry saw a fall of 1.6%, as mining, quarrying and maintenance in the North Sea including oil and gas were all hit.

On the plus side, the construction industry grew by 0.4% in August, up from 0.1% in July. This increase came through expansion in new work (1.9%), infrastructure (5.3%), private industrial (4.3%) and private housing (1.7%).

Yael Selfin, chief economist at KPMG UK, said: ‘The ongoing squeeze on household finances continues to weigh on growth, and is likely to have caused the UK economy to enter a technical recession from the third quarter of this year.

‘The prospect of the Bank of England raising base interest rates higher and worries about a shaky housing market could see GDP falling by as much as 1.6% in 2023.’

Output in consumer facing services, including professional services and hospitality, fell by 1.8%, after a growth of 0.7% in July.

Human health and social work activities were the largest negative contributor to the services fall, with a decline of 1.3% in August. This was driven largely by a drop in the number of hospital consultations and operations.

The second largest negative contribution within services came from arts, entertainment and recreation, which fell by 5% in August.

Grant Fitzner, chief economist at ONS, said: ‘The economy shrank in August, with both production and services falling back, and with a small downward revision to July’s growth the economy contracted in the last three months as a whole.

‘Oil and gas production fell as more scheduled North Sea summer maintenance took place than usual. Notable decreases were also seen across much of manufacturing.

‘Sports events had a slower month after a strong July and many other consumer facing services struggled with retail, hairdressers and hotels all fairing relatively poorly.

‘On the positive side, these falls were partially offset by stronger than usual summer performance from many professional services such as lawyers, accountants and architects.’ 

Responding to the latest figures, Suren Thiru, economics director for ICAEW, said: ‘The latest data confirms the economy was flatlining even before the chaos caused by the Chancellor’s mini budget.

‘The government has needlessly risked a longer recession with any boost from the energy package likely to be dwarfed by a sustained squeeze on UK output from persistently high inflation, punishing interest rate rises and acute financial market turbulence.

‘The slump in sterling is a double-edged sword for firms trading overseas. While it may improve the competitiveness of some traders, most UK exporters are also importers and so face much higher input costs due to the weakening currency.’