The UK economy shrank even faster than expected in October, as Britain’s manufacturing and construction sectors were hit by bad weather.
Economists said it would be premature to say the country is headed into a recession – but warned that the “spectre” would hang over Britain for a long time.
Gross domestic product (GDP) is thought to have fallen 0.3 per cent during the month, down from 0.2 per cent growth in September, the Office for National Statistics (ONS) said.
Experts had expected GDP to contract by just 0.1 per cent. But the worse-than-expected figures came as all three of the main sectors fell into negative territory for the first time since July.
Labour’s shadow chancellor Rachel Reeves said that the data shows that Rishi Sunak’s government had “failed” to grow the economy as promised.
“Rishi Sunak ends the year having failed to deliver on his own promise to grow the economy. Economic growth is going backwards leaving working people worse off,” Ms Reeves said – accusing Mr Sunak of being “too weak to deliver for Britain”.
Chancellor Jeremy Hunt said it was “inevitable” that growth will be “subdued whilst interest rates are doing their job to bring down inflation”.
Pointing to his tax cuts, Mr Hunt added: “But the big reductions in business taxation announced in the autumn statement mean the economy is now well placed to start growing again.”
Thomas Pugh at consulting firm RSM UK said that a drop-off in inflation and rising wages would likely boost the economy in the last two months of the year. “In any case, the big picture is still one of a stagnating economy,” he said.
“We doubt growth will materially pick up until towards the end of next year, meaning that the spectre of recession will hang over the UK economy for a long time yet.”
Federation of Small Business chair Martin McTague said that the figure was “disappointing news” that “will leave many feeling flat”.
The worse-than-expected reading comes as the Bank of England is to set a new interest rate on Thursday. Decision-makers at the Bank were already unlikely to raise interest rates at this week’s meeting.
The ONS data will give them even more certainty that rates are high enough to be “restrictive” and dampen the economy. They are also aware that the full effect of their recent spate of interest rate hikes has not yet been felt.
People who have taken out new mortgages, have had to re-mortgage their properties or who are on a tracker mortgage will have seen their monthly payment rise significantly.
About five million mortgages will still be up for renewal by the end of 2026. So far these people have avoided the hit of rising interest rates.
But the rate setters on the Monetary Policy Committee (MPC), including Bank governor Andrew Bailey, have stressed repeatedly that it is far too soon to talk about cutting rates.
“October’s drop in GDP adds to the growing list of recent downside data surprises, but we still doubt that the MPC will change its tune and signal its willingness to cut Bank Rate next year as soon as this week’s meeting,” Mr Tombs said.
While the larger services sector contributed the most to the slowdown in October, the production sector fell the most rapidly. It saw output down by 0.8 per cent thanks to a slowdown in manufacturing caused in part by the computer, electronics and optical products sectors.
Meanwhile, the construction sector was hit by one of the rainiest Octobers in the last 200 years.
“The ONS also noted that it had received comments from consumer services firms that demand was lower than usual as a portion of the half-term holidays in some areas fell in November this year,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“Our initial estimates suggest that GDP growth was flat across the last three months. Increases in services, led by engineering, film production and education – which recovered from the impact of summer strikes – were offset by falls in both manufacturing and housebuilding,” said ONS director of economic statistics Darren Morgan.
“October, however, saw contractions across all three main sectors. Services were the biggest driver of the fall with drops in IT, legal firms and film production – which fell back after a couple of strong months.
“These were also compounded by widespread falls in manufacturing and construction, which fell partly due to the poor weather.”
