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The UK economy unexpectedly contracted by 0.1 per cent in October, driven by lower output, in a blow to the Labor government's economic agenda.
Monthly change in gross domestic product The report published by the Office for National Statistics on Friday was lower than the 0.1 percent growth forecast of economists polled by Reuters. This follows a 0.1 percent contraction in the previous month.
The British pound fell by 0.29 percent against the dollar immediately after the data was released.
These figures highlight the economic challenge facing the new Labor government, which won the UK general election in July with a statement commitment to “secure the highest sustainable growth in the G7”.
“We are determined to deliver economic growth because higher growth means higher living standards for everyone, everywhere,” Chancellor Rachel Reeves said on Friday.
“While the numbers this month are disappointing, we have put policies in place to achieve long-term economic growth,” she added.
Last week, the OECD lowered its 2024 growth forecast for the UK to 0.9 per cent from 1.1 per cent expected in September due to weak incoming data.
However, it expects growth to accelerate to 1.7 percent in 2025. This figure is weaker than the 2.4 percent expansion forecast for the United States, but stronger than the 1.3 percent for the euro area.
Friday's figures indicate a weak start to the fourth quarter after economic growth slowed to 0.1 percent year-on-year in the three months to September, down from 0.5 percent in the previous quarter.
Output in the dominant services sector did not record any growth in October, as output contracted by 0.6 percent and the construction sector recorded a decline of 0.4 percent.
Liz McKeown, director of economic statistics at the ONS, said: “Oil and gas extraction, pubs, restaurants and retail all had weak months, partly offset by growth in telecoms, logistics and legal businesses.”
Separate data published by research firm GfK on Friday showed that consumer confidence remained low in November, rising just one point to -17 in December.
UK Prime Minister Sir Keir Starmer recently announced that he intends to target household disposable income as a new “benchmark” to assess the success of his economic policies.
High borrowing costs are still limiting 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 percent.
Markets expect further interest rate cuts next year as inflation declines from the multi-decade high it reached in 2022.
In the three months to September, GDP per capita, a measure of living standards, remained 0.7 percent below its level in the fourth quarter of 2019, before the pandemic, highlighting the damage to growth from Covid-19 and the costs of… Living. crisis during the past five years.
“We expect slowing inflation and interest rate cuts to stimulate growth in the UK over the next 12 months as consumers reduce their savings and businesses benefit from lower financing costs,” said Marion Amyot, chief economist at S&P Global Ratings.
This is a developing story
