THE UK is facing “extremely difficult decisions”, Jeremy Hunt has warned, as new figures showed the economy is on the brink of a record recession.

Signalling harsh spending cuts and tax rises in next week’s budget to tackle an estimated £60billion black hole, the Chancellor said he would need to “grip inflation, balance the books and get debt falling”.

The decisions would be "eye-watering", he admitted.

It followed the Office for National Statistics reporting today that the economy shrank by 0.2 per cent between July and September, with manufacturing in particular hit by a slump.

The Bank of England has predicted the contraction in gross domestic product marks the start of a two-year recession, the longest on record, albeit a relatively shallow one.

The ONS also said GDP shrank by 0.6% in September, in part due to closures around the Queen’s funeral.

The GDP changes are the biggest quarterly and monthly falls since early 2021 when the UK went back into lockdown to help tackle the Covid pandemic.

If the economy continues to contract in the final three months of 2022, as experts expect, it would meet the technical definition of a recession - two quarters of negative growth.

Responding to the numbers, Mr Hunt said global factors were driving the situation, despite the recent financial chaos unleashed by Liz Truss and her failed mini-budget.

Mr Hunt was appointed by Ms Truss and retained by Rishi Sunak.

The Chancellor said: “We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.

“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.

“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.” 

He said the Bank of England’s warning that the nation was likely to enter recession was “disappointing but not entirely unexpected news”.

But when pressed on how the UK was the only G7 economy currently shrinking, he sought to largely blame rising energy prices.

“What we need is a plan that shows how we are going to get through this difficult period – if it is a recession, how we make it shallower and quicker”.

Mr Hunt also insisted tackling inflation is the priority when asked about whether a “winter of discontent” is coming, as nurses and civil servants prepare to join workers on strikes.

“Nurses are working incredibly hard, as is everyone on the NHS front line.

"It’s an area that I know well [as a former Health Secretary] and I have a great deal of sympathy for them. The reason that they are feeling so frustrated is because inflation is more than 10%,” he said.

“The best thing I can do as Chancellor is to produce a plan that brings down inflation, brings down the upward pressure on interest rates.

“What we need is to put that plan in place, it’s not going to be easy, there are going to be some very difficult choices. I’ve used the word ‘eye-watering’ before, and that’s the truth.”

Mr Hunt said there was a “very substantial gap” in the nation's finances.

Labour's shadow Chancellor Rachel Reeves said the GDP figures were “extremely worrying”.

She said: “Today’s numbers are another page of failure in the Tories’ record on growth, and the reality of this failure is family finances crunched, British businesses left behind, and more anxiety for the future.

“We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity.

“Britain has so much potential to grow. We have the talent. We have the capacity.”

The Resolution Foundation said that if the downturn continued it would be the first time since 1975 that the  UK has slipped back into recession so quickly.

Research director James Smith said: “Falling consumer spending has caused the economy to shrink in the third quarter of 2022.

“This has set Britain on course for the quickest return to recession in nearly half a century.”

The ONS said that around half of the 0.6% drop for September was due to the bank holiday on the day of the Queen’s funeral.

Unlike most other bank holidays, there was no boost on that day for restaurants, pubs and tourist attractions as most businesses were closed, or reduced their opening hours.

ONS director of economic statistics Darren Morgan said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.

“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries. Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”

The reading comes just a week after the Bank of England published a caveated forecast that the UK might be headed for an eight-quarter recession – the longest consecutive recession since reliable records began in the 1920s.

However, the Bank warned that this would only happen if it raises interest rates to around 5.2% – which the market was expecting at the time.

It said it does not expect rates to reach such a high level, which would imply that the recession could be less drawn out.

The September figure was worse than expected – analysts had forecast a 0.5% drop during the month, according to Pantheon Macroeconomics.

However, the ONS changed its readings for August and July, helping the quarter as a whole. The economy was thought to have shrunk by 0.3% in August, but that was revised to 0.1%.

In July the economy was also thought to have risen 0.1% but the ONS changed it to 0.3%.

Martin McTague, chair of the Federation of Small Businesses, said confirmation of a shrinking economy was “dreadful news” for small businesses struggling with inflation. 

He said: “The outlook for the UK economy is now very bleak indeed.

“The fall in GDP is one headline figure made up of countless bits of disappointing news for small businesses across the country – a new venue or premises they couldn’t open, a contract which ended unexpectedly, a staff member they had to let go. 

“Taken together, the impact on the economy is huge, and the Government must demonstrate that it has grasped the scale of the issue.” 

“The Government next week at its Autumn Statement must not just balance the books – it has to have a clear set of measures that will help boost prosperity, growth and jobs. Without it, in a year’s time we will be back here again, with an even smaller economy, looking once again for spending cuts and tax rises to balance a spreadsheet total.”