Explained: The grim triple whammy on UK economy that impacts on us all

In fact it has been hit by a triple whammy.

Here are the grim details:

Whammy 1: GDP

Figures reveal the economy unexpectedly shrank in August as factories and consumer services firms struggled, putting the UK on track to contract overall in the third quarter, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) dropped by 0.3 per cent between July and August, down from growth of 0.1 per cent the previous month, which was downwardly revised from the 0.2 per cent previous estimation.

Economists had been expecting zero growth in August.

The latest data means the economy is likely to contract overall in the third quarter, with the ONS confirming there would need to be growth of more than one per cent in September to avert a quarterly decline.

It comes amid fears that the UK is heading for a recession as the cost-of-living crisis takes its toll on households and businesses.

Chancellor Kwasi Kwarteng insisted the Government’s energy support package and growth plan will “address the challenges that we face”.

But the financial market turmoil sparked by his mini-budget has sent mortgage rates soaring, heaping yet more pressure on cash-strapped Britons.

The International Monetary Fund (IMF) warned on Tuesday that the UK economy could sharply reduce in 2023 as consumer spending catches up with rampant inflation and higher interest rates.

It downgraded its forecast for UK GDP growth next year to just 0.3 per cent in 2023 from 0.5 per cent previously pencilled in.

Mr Kwarteng said: “Our growth plan will address the challenges that we face with ambitious supply-side reforms and tax cuts, which will grow our economy, create more well-paid skilled jobs and, in turn, raise living standards for everyone.”

The latest ONS data showed manufacturing output dropped 1.6 per cent in August, while the services sector also saw a decline, down 0.1 per cent.

Output in consumer-facing services tumbled by 1.8 per cent in August after growth of 0.7 per cent in July, according to the figures.

The construction sector was the only one of the three main parts of the economy to see growth in August, with 0.4 per cent expansion.

Whammy 2: Stricken pound

The pound has been falling again after the Bank of England warned its emergency support package for the markets would end on Friday.

The man in charge of the Bank, governor Andrew Bailey, appeared exasperated after intervening for the second time in as many days to prevent “fire sales” of pension fund assets amid continuing market turmoil in the wake of Chancellor Kwasi Kwarteng’s mini-budget.

The governor said the country “has my word” that he is doing everything he can to stabilise the economic crisis.

But he warned there could be no further extension of emergency support beyond the end of the week.

“My message to the pension funds involved – you’ve got three days left now. You have got to get this done. Part of the essence of a financial stability intervention is that it is clearly temporary.”

Whammy 3: Mortgage peril

The proportion of households struggling to make their mortgage payments is expected to increase, the Bank of England has warned.

The Bank’s Financial Policy Committee (FPC) said households in financial peril will soar if interest rates increase in line with what the market expects.

Those who spend more than 70 per cent of their take-home pay on mortgages and other essentials are particularly at risk.

These households will struggle to meet their payments and will have to cut spending, and could default on their loans.

“It will be challenging for some households to manage the projected rises in the cost of essentials alongside higher interest rates,” the Bank said.

The warning came as it was revealed nearly one in five households will try to hold off heating their homes until at least December because of fears on the cost of living.

More than three-quarters of people said they would layer up and wear warmer clothes rather than put on the heating and over a fifth said switching their heating on would only happen on rare occasions, according to Nationwide Building Society.

More than nine in 10 people are trying to switch on the lights less often.

Nationwide released the findings as it starts to offer cost-of-living financial health checks to struggling members, with appointments in branch, over the telephone or video. Nationwide previously launched a freephone cost-of-living hotline in August.

Average fuel bills will be capped to around £2,500 per year. But that is added to increased prices and rising mortgage rates.

A separate survey from Smart Energy GB found over half of households have changed their energy habits throughout this year and 29 per cent are planning to keep monitoring them. A third said they already have or would change energy habits to protect budgets.

The Government’s energy price guarantee means an average household will pay around £2,500 per year. But people could end up paying more if they live in a larger household, use more energy than average or live in a poorly insulated home, for example.