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Britain’s economy unexpectedly shrank by 0.1% in October, its second consecutive contraction, in a blow to the Labor government’s economic agenda.
The monthly change in GDP released by the Office for National Statistics on Friday was lower than the 0.1% growth forecast by economists polled by Reuters. It decreased by 0.1% in the previous month.
Sterling fell 0.4% against the dollar shortly after the data was released.
The figures highlight the economic challenges of the new Labor government, which won Britain’s general election in July with a pledge to “secure the highest sustained growth in the G7”.
“We are determined to achieve economic growth because higher growth means higher living standards for everyone, everywhere,” Prime Minister Rachel Reeves said Friday.
“While this month’s numbers are disappointing, we have put in place policies that will deliver long-term economic growth,” she added.
Paul Dales, chief UK economist at Capital Economics, pointed out that the economy had grown in only one of the five months to October and that growth was now 0.1% lower than before Labor came to power.
“This suggests it’s not just the budget that’s holding back the economy,” he said, referring to Reeves’ tax hikes announced in October. “Instead, the delays caused by higher interest rates may last longer than we thought.”
Last week, the OECD lowered its 2024 growth forecast for the UK to 0.9% from the 1.1% expected in September due to weak incoming data.
However, growth is expected to accelerate to 1.7% in 2025. This figure is lower than the US growth forecast of 2.4%, but stronger than the eurozone’s 1.3% growth forecast.
Friday’s figures showed a weak start to the fourth quarter, with annual economic growth slowing to 0.1% in the three months to September from 0.5% in the previous quarter.
Isaac Stell, investment manager at Wealth Club, said: “These latest figures further exacerbate the negatives surrounding the government’s latest budget due to increased taxes on businesses.”
“More and more companies are saying they will be hiring and investing less,” he said. . . The question is where does the growth actually come from?”
Output in the key services sector showed no growth in October, with production down 0.6% and construction down 0.4%.
Liz McKeown, ONS director of economic statistics, said: “Oil and gas extraction, pubs, restaurants and retail all had weak months, partly offset by growth in communications, logistics and law firms.”
Separate data released on Friday by research firm GfK showed consumer confidence remained low in November and rose just one point to minus 17 in December.
The ONS reported mixed opinions from businesses on the budget. Those negatively affected said sales had been affected as customers waited for the Prime Minister’s announcement.
But others said the activity took place in anticipation of various budget measures.
British Prime Minister Keir Starmer recently announced that he would target household disposable income as a new ‘milestone’ to assess the success of his economic policies.
High borrowing costs still limit household spending and business activity but have fallen from their peak after the Bank of England cut interest rates in August and November to the current 4.75%.
Markets expect further interest rate cuts next year as inflation eases from the multi-decade high reached in 2022.
GDP per capita, a measure of living standards, in the three months to September was still 0.7% below its pre-pandemic fourth quarter level of 2019, highlighting the hit to growth and falling costs of living caused by COVID-19. Crisis over the past five years.
“We expect disinflation and interest rate cuts to boost UK growth over the next 12 months as consumers cut back on savings and businesses benefit from lower financing costs,” said Marion Amiot, chief economist at S&P Global Ratings. .
This is a story that develops
