Britain's economy shrank in three months, likely foreshadowing a prolonged recession and making it difficult for Finance Minister Jeremy Hunt, who is preparing to raise taxes and cut spending, reports Reuters.

According to official data, output fell 0.2 percent in the third quarter, less than the 0.5 percent decline predicted by analysts in a Reuters poll.

But it is the first drop in gross domestic product since early 2021, when Britain was still under tight restrictions because of the coronavirus.

Last week, the Bank of England said the British economy could slip into a recession that would last two years if interest rates rose as investors had hoped.

Even without further rate hikes, he said, the economy would contract in five of the six quarters before the end of 2023.

""Fears of a recession are turning into reality," Suren Thiru, economics director at the Institute of Chartered Accountants of England and Wales. "This fall in output is the start of a punishing period as higher inflation, energy bills and interest rates clobber incomes, pushing us into a technical recession from the end of this year."

The U.K. economy shrank 0.6 percent in September alone, according to the Office for National Statistics. That was a larger monthly drop than the average forecast of a 0.4% contraction in a Reuters poll, and the largest since January 2021, when the COVID-19 lockout was enacted.

The weak economic outlook provides an unfavorable backdrop for Treasury Secretary Hunt's budget announcement next week.

Commenting on the latest figures, he reiterated his warnings that tough tax and spending decisions will be needed to restore British public finances and confidence in the government's economic policies after Liz Truss' brief tenure as prime minister.

"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," Hunt said in a statement. "But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling," he added. "There is no other way."