Economists also warned of the impact of the Government’s latest tax grab on the economy as rises in National Insurance and dividend levies from next April are set to bring tax as a share of the economy to the highest since the Second World War.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “While there are good reasons to think this is only a temporary pause, the government needs to focus on boosting growth rather than raising taxes.
He added: “Now is clearly a bad time to be ramping up the tax burden even further.”
Josie Dent, managing economist at the Centre for Economics and Business Research, said: “This week’s announcement of a rise in National Insurance could also impact economic growth looking ahead, as consumers are left with less to spend after taxes. Also, the upcoming end of the furlough scheme and termination of the £20 a week universal credit uplift also present risks to the recovery.”
The shock figures prompted warnings from the CBI business group that companies would remain under pressure from weak growth, a shortage of HGV drivers and other workers, and supply chain disruption.
Alpesh Paleja, the CBI’s lead economist, said: “Labour shortages and supply chain disruption have continued since, and are likely to have taken the edge off growth as we head into autumn.
“Businesses hope the bulk of supply disruption will prove temporary, but firms are not confident that all shortages will fade any time soon. To help ease these pressures, temporary, targeted interventions are needed to enable businesses to keep their doors open – for instance, placing HGV drivers on the Shortage Occupation List could make a real difference.”
The slowdown, worse than the 0.5pc advance that had been expected by City economists, came after growth ground to a halt in the services sector – the largest part of the UK economy.
Construction output also shrank for a fourth month in a row as the sector was hit by raw materials shortages and the economy overall only managed to eke out growth thanks to a 1.2pc rise in industrial production.