Inflation is on the rise and the economy is shrinking – is this the start of a long slump? (Picture: Getty)

The economy shrunk by 0.2% between July and September in what is predicted to be the start of a long recession.

Bank of England forecasters set out their fears earlier this month that the UK could be on the brink of the longest period of contraction on record.

Now data from the Office for National Statistics (ONS) has confirmed gross domestic product (GDP) is heading in the wrong direction, mainly fuelled by ‘widespread declines’ in Britain’s manufacturing industry.

With families looking to save money amid the cost of living crisis, ‘consumer-facing industries fared badly’, the ONS said, with a ‘notable fall’ in retail contributing to the slump.

The figures could herald beginning of a recession, which is defined as two quarters of shrinking GDP in a row and would be officially under way by the end of the year unless the economy starts growing immediately.

The ONS figures showed the biggest drop in GDP was in September, when the extra Bank Holiday held for the Queen’s funeral may have contributed to a 0.6% fall.

In response, chancellor Jeremy Hunt pointed to global factors but warned of a ‘tough road ahead’ and said there would be ‘extremely difficult decisions’ in the November 17 budget.

He added: ‘But to achieve long-term sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.

Jeremy Hunt has warned tax rises and cuts will be announced on November 17 (Picture: PA)

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

Labour’s shadow chancellor Rachel Reeves said the figures were ‘extremely worrying’ and attacked the government’s economic record.

She continued: ‘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.’

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The chancellor has warned cuts and tax rises are on the way as the country enters what could be a prolonged slump.