Britain's economy unexpectedly shrank in August after slender growth the previous month, hit by the cost-of-living crisis and rocketing energy bills, official data showed Wednesday.

Gross domestic product contracted by 0.3 percent in August, weighed down by production and services, the Office for National Statistics (ONS) said in a statement.

That was worse than expectations of flat growth and followed weak expansion in July, which was revised down to 0.1 percent, downgraded from a previous estimate of 0.2 percent growth.

"The economy shrank in August, with both production and services falling back," said ONS chief economist Grant Fitzner.

Consumer-facing services contracted by 1.8 percent, with the largest falls in sports, amusement and recreation.

"August's drop in GDP likely marks the start of a downward trend that will continue deep into next year," said Samuel Tombs, chief UK economist at research consultancy Pantheon Macro.

"The drop was driven by a 1.8-percent month-to-month fall in output in consumer-facing services sectors, reflecting the intense real income squeeze on households."

Inflation in August hit 9.9 percent, holding close to a 40-year peak as energy bills rocket, in turn worsening the UK's cost-of-living crisis.

The ONS added Wednesday that oil and gas production fell due to more North Sea summer maintenance than usual in the month, while there were notable declines in manufacturing.

The gloomy news comes amid market turmoil after Britain's recent debt-fuelled budget, which included a costly energy price freeze.

It also comes one day after the International Monetary Fund warned of a sharp slowdown in the UK economy, which it expects to drop from 3.6 percent this year to just 0.3 percent in 2023.

(Source: AFP with edits)