UK economy shrinks for the second month in October
The UK economy shrank for a second consecutive month in October as budget concerns continued to weigh on confidence.
Although the economy was expected to return to growth after a slump in September, official data showed a 0.1% decline.
The Office for National Statistics (ONS) said economic activity in the pubs, restaurants and retail sectors had stalled or declined, reporting “a weak few months”.
Chancellor Rachel Reeves said the figure was “disappointing” but added: “We have policies in place to deliver long-term economic growth.”
Shadow chancellor Mel Stride said: “The decline in economic growth demonstrates the serious impact of the chancellor’s decisions and continued belittling of the economy.”
Yael Selfin, chief economist at KPMG, said economic activity was “suppressed by uncertainty ahead of the October 30 budget” as businesses and consumers curbed spending.
But the ONS said some industries, including property, law firms and accountants, had started work ahead of Reeves’ budget announcement.
The economy has grown just once in the past five months, 0.1% below what it was before Labor won the election in July, according to Capital Economics.
“This shows that it’s not just the budget that’s holding back the economy,” said Paul Dales, chief UK economist at Capital.
“Instead, the drag from rising interest rates may linger longer than we think.”
The Bank of England has cut interest rates twice this year, but at 4.75%, it is still at a high level compared with recent years.
The central bank will meet next week to make its final interest rate decision in 2024, although it is widely not expected to cut borrowing costs again until next year.
Simon Wells, chief European economist at HSBC, warned against placing too much emphasis on October’s data.
He told the BBC’s Today program that these were the ONS’s preliminary estimates of economic growth and were likely to be “substantially revised”.
“So just because it’s -0.1% today, it doesn’t mean that’s going to be the case a few months from now when more data comes out.”
The economy grew 0.1% in the three months to October.
