Central banks on both sides of the Atlantic have come under renewed pressure to cut interest rates early in the new year after official figures showed an increasing likelihood of a recession in the UK and a drop in inflation in the US. Analysts said the US Federal Reserve would struggle to resist calls for lower interest rates in the first half of 2024 after the central bank’s preferred measure of inflation fell to 3.2% in November from 3.4% in the previous month. The Bank of England was also expected to face demands for lower borrowing costs after official figures released on Friday appeared to show a tightening of monetary policy this year had pushed the economy to the brink of a recession. An assessment that gross domestic product (GDP) fell by 0.1% in the third quarter – down from the previous estimate of no growth – will be a blow to Rishi Sunak, who has promised to get the economy growing as one of his fives pledges to voters before an expected general election next year. GDP for the second quarter was also revised down to zero growth, from a previous estimate of 0.2% expansion, while the latest assessment of the economy showed it shrank 0.3% in October and inflation fell to 3.9% in November. An economy is considered to be in a technical recession after two consecutive quarters of contraction in GDP, and a further contraction in the fourth quarter would push the UK into that category. The Office for National Statistics (ONS) said a poorer than previously assessed performance by small companies, film production, engineering and design and telecommunication and the IT sector accounted for much of the revision. The chancellor, Jeremy Hunt, said he believed the economy was poised to rebound: “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 [Office for Budget Responsibility] 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.” His Labour counterpart, Rachel Reeves, dismissed Hunt’s analysis, saying the latest figures were an example of Sunak’s record of failure as prime minister. “He failed to beat Liz Truss, he failed to cut waiting lists, he failed to stop the boats and now he has failed to grow the economy,” the shadow chancellor said. “Thirteen years of economic failure under the Conservatives have left working people worse off, with higher bills, higher mortgages and higher prices in the shops.” City analysts were agreed that an already weak performance by the UK economy this year had been found to be worse than previously thought, despite a larger rise in consumer spending than earlier estimates showed. They also expect Bank of England’s 14 interest rate rises over the last two years, taking the cost of borrowing from 0.1% to 5.25%, to have taken a bigger toll on the corporate sector and household spending than previously thought. Separate figures for UK retail sales volumes in November provided a lift, beating City forecasts of a 1.3% fall to register a modest 0.1% increase year on year after a 0.3% increase since October. Black Friday sales proved to be better than City forecasts, and discounting on furniture, carpets and other household items drew shoppers back to the high street. However, the retail analyst Nick Bubb said he remained sceptical that the ONS had a strong grasp of trends in retail spending, which other surveys showed remained weak going into the festive period. The weaker GDP data came the day after Hunt told the Financial Times: “If we stick to the course we’re on, we’re able to bring down inflation, the Bank of England might decide they can start to reduce interest rates” next year. Martin Beck, the chief economic adviser to the EY Item Club, said GDP was dealt a big blow after an estimate of business investment in the third quarter was cut to 3.2% from 4.2%. He said the downturn was likely to influence the central bank and force it to cut rates early next year. “The Bank of England [is likely to] retreat from its hawkish rhetoric, meaning interest rates could be cut earlier and more significantly than many had been anticipating.” With a reduction in interest rates next year expected to boost consumer spending, the economy could rebound in 2024. “So, a worse-than-expected performance this year should be balanced by a better outlook for 2024 and 2025,” he said.