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The UK economic system unexpectedly shrank 0.1 per cent in October, the second contraction in a row, in a blow to the Labour authorities’s financial agenda.
The month-to-month change in GDP revealed on Friday by the Workplace for Nationwide Statistics undershot the 0.1 per cent growth forecast by economists polled by Reuters. It adopted a 0.1 per cent contraction within the earlier month.
Sterling was down 0.3 per cent in opposition to the greenback to $1.263. The yield on the two-year gilt, which strikes inversely to costs, fell 0.02 proportion factors to 4.26 per cent.
The figures underscore the financial problem for the brand new Labour authorities, which gained the UK common election in July with a manifesto dedication to “safe the best sustained progress within the G7”.
Labour has since sought to handle expectations, with chancellor Rachel Reeves warning of a grim inheritance within the public funds together with a £22bn fiscal “black gap” forward of her tax-raising October Price range.
“Whereas the figures this month are disappointing, now we have put in place insurance policies to ship long-term financial progress,” Reeves mentioned on Friday.
The Conservatives claimed the poor progress figures mirrored the impression on enterprise of Reeves’ gloomy post-election rhetoric on the economic system.
Mel Stride, shadow chancellor, mentioned on Friday: “It’s no marvel companies are sounding the alarm. This fall in progress exhibits the stark impression of the chancellor’s choices and regularly speaking down the economic system.”
Friday’s figures level to a weak begin to the fourth quarter after annual financial progress slowed to 0.1 per cent within the three months to September, down from 0.5 per cent within the earlier quarter.
Paul Dales, chief UK economist at Capital Economics, famous that the economic system had grown in simply one of many 5 months to October, and that progress was now 0.1 per cent decrease than earlier than Labour got here into energy.
“That means it’s not simply the Price range that’s holding the economic system again,” he mentioned. “As a substitute, the drag from increased rates of interest could also be lasting longer than we thought.”
Final week the OECD minimize its 2024 progress forecast for the UK to 0.9 per cent from the 1.1 per cent that was anticipated in September resulting from weaker incoming information.
Nonetheless, it expects progress to speed up to 1.7 per cent in 2025. That determine is weaker than the two.4 per cent growth forecast for the US however stronger than the 1.3 per cent for the Eurozone.
In response to Friday’s ONS figures, output within the dominant companies sector registered no progress in October, with manufacturing contracting 0.6 per cent and development registering a 0.4 per cent fall.
“The chance of a quarterly contraction [in the final three months of the year] is not negligible,” mentioned Sanjay Raja, economist at Deutsche Financial institution, noting {that a} attainable commerce warfare when President-elect Donald Trump re-enters the White Home represented a big exterior headwind.
ONS director of financial statistics Liz McKeown mentioned: “Oil and fuel extraction, pubs and eating places and retail all had weak months, partially offset by progress in telecoms, logistics and authorized companies.”
Separate information revealed on Friday by analysis firm GfK confirmed shopper confidence remained low in November, edging up just one level to minus 17 in December.
The ONS reported combined feedback from companies referring to the Price range. These negatively affected mentioned turnover was hit as prospects waited for bulletins from the chancellor.
Nonetheless, others mentioned exercise had been introduced ahead in anticipation of varied Price range measures.
UK Prime Minister Sir Keir Starmer not too long ago introduced he would goal family disposable earnings as a brand new “milestone” for score the success of his financial insurance policies.
Excessive borrowing prices are nonetheless limiting family spending and enterprise exercise, however they’ve come down from their peak after the Financial institution of England minimize rates of interest in August and November to the present 4.75 per cent.
Markets count on extra charge cuts subsequent 12 months as inflation eases from its multi-decade excessive reached in 2022.
James Smith, economist at ING, mentioned he believed the UK economic system was nonetheless “poised to outpace most of western Europe subsequent 12 months” since Labour elevated public spending by greater than 2 per cent of GDP in contrast with the Conservatives’ Price range plans.
Further reporting by George Parker and Jim Pickard
