Jeremy Hunt has warned of a “tough road ahead” after Britain’s economy shrank in the three months to September, in what is expected to be the beginning of a lengthy recession. In its first estimate of growth in the third quarter, the Office for National Statistics (ONS) presented a bleak picture of the economy before next week’s autumn statement from the chancellor. Gross domestic product fell by 0.2% in the third quarter as households and businesses struggled with soaring inflation, while there was also a hit to activity as businesses closed for the extra bank holiday for the funeral of Queen Elizabeth II. The Bank of England expects the latest GDP figures to be the start of a prolonged UK recession – as rising interest rates and the cost of living take their toll on activity – lasting until the end of next year. Another negative growth figure for the final three months of 2022 would confirm a technical recession. The economy grew by 0.2% in the second quarter of 2022. Hunt said that the world economy was facing a period of “extreme turbulence” but that the “fundamental resilience of the British economy is cause for optimism in the long run”. He added: “I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.” Activity in the service sector ground to a halt, with zero growth over the quarter, driven by a fall in consumer spending as households came under mounting pressure from the cost of living crisis. Growth in the construction sector slowed, while factory output slumped because of a sharp decline in manufacturing as some businesses continued to struggle with supply chain difficulties and shortages of key materials. The economy shrank by 0.6% in September alone as shops and other businesses closed their doors as a mark of respect, with about half of the fall attributed to the mourning period, with the widespread shutdown leading to a sharper decline than usual for a bank holiday. Alpesh Paleja, the lead economist at the Confederation of British Industry lobby group, said that even accounting for the extra bank holiday it was clear that underlying activity had weakened. However, he warned the chancellor against launching an austerity drive that would choke off growth further. “A weaker growth outlook and persistently high inflation will make for some difficult decisions on economic policy. The autumn statement must learn the lessons of the 2010s,” he said. The snapshot comes amid growing fears over the strength of the economy as households rein in spending amid the highest rates of inflation since the early 1980s, alongside a dramatic rise in mortgage costs for some families after Liz Truss’s disastrous mini-budget. The ONS said there had been a sharp decline in the buying, selling and renting of property in September, with a 0.9% drop. Figures this week from Halifax, the UK’s biggest mortgage lender, showed a fall in house prices last month after the ill-fated mini-budget drove up borrowing costs. Rachel Reeves, the shadow chancellor, said the latest figures represented “another page of failure in the Tories’ record on growth” after a decade of underinvestment and widening inequality. “The reality of this failure is family finances crunched, British businesses left behind and more anxiety for the future,” she said. Europe’s largest economies are also poised to fall into recession as soaring inflation exacerbated by Russia’s war in Ukraine hits growth, with the European Commission warning that the EU economy was probably shrinking in the current quarter. Britain is, however, lagging behind other countries as the only member of the G7 group of wealthy nations whose economy shrank in the three months to September. Britain is also the only G7 economy where quarterly GDP remains below pre-Covid levels. James Smith, a research director at the Resolution Foundation thinktank, said the figures provided a sobering backdrop to the autumn statement. “The chancellor will need to strike a balance between putting the public finances on a sustainable footing, without making the cost-of-living crisis even worse, or hitting already stretched public services.”