The U.K. economy experienced an unexpected contraction of 0.1% in the three months leading up to October, according to official data released on Friday. This decline came as a surprise to economists, who had anticipated no growth during the same period. This latest figure follows a modest expansion of 0.1% for the three months ending in September.
The Office for National Statistics reported a stagnation in services output, alongside a 0.3% decrease in construction output and a 0.5% decline in production output. The data attributed the production downturn largely to a reduction in the manufacture of motor vehicles, trailers, and semi-trailers.
These economic figures emerge shortly after U.K. Chancellor Rachel Reeves introduced a series of tax increases in her recent Budget, aimed at addressing a significant financial shortfall while seeking to stimulate economic growth.
Investment strategist Lindsay James from Quilter emphasized the gravity of the situation, noting, “October’s GDP underscores just how much difficulty the U.K. economy is going through as the government searches for some sort of growth.” She highlighted that the latest data fell short of already reduced expectations and warned of potential challenges for upcoming figures.
As attention turns to the Bank of England’s monetary policy meeting scheduled for next week, experts like James speculate that the recent contraction increases the likelihood of a quarter-point rate cut, potentially lowering the base rate to 3.75%. However, she cautioned that persistent inflation could complicate the pace of future rate adjustments.
Yael Selfin, chief economist at KPMG UK, shared a pessimistic outlook for the forthcoming quarter, predicting that economic activity in November would likely be hampered by ongoing uncertainty surrounding the Budget. She forecasted flat GDP growth for the final quarter of the year.
