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The UK financial system unexpectedly shrank 0.1 per cent in October, the second contraction in a row, in a blow to the Labour authorities’s financial agenda.
The month-to-month change in GDP printed on Friday by the Workplace for Nationwide Statistics undershot the 0.1 per cent enlargement forecast by economists polled by Reuters. It adopted a 0.1 per cent contraction within the earlier month.
Sterling fell 0.4 per cent towards the greenback following the info launch.
The figures underscore the financial problem for the brand new Labour authorities, which received the UK common election in July with a manifesto dedication to “safe the best sustained development within the G7”.
Labour has since sought to handle expectations, with chancellor Rachel Reeves warning of a grim inheritance within the public funds together with a £22bn fiscal “black gap” forward of her tax-raising October Finances.
“Whereas the figures this month are disappointing, we now have put in place insurance policies to ship long-term financial development,” Reeves stated on Friday.
The Conservatives claimed the poor development figures mirrored the influence on enterprise of Reeves’ gloomy post-election rhetoric on the financial system.
Mel Stride, shadow chancellor, stated on Friday: “It’s no surprise companies are sounding the alarm. This fall in development reveals the stark influence of the chancellor’s selections and regularly speaking down the financial system.”
Friday’s figures level to a weak begin to the fourth quarter after annual financial development slowed to 0.1 per cent within the three months to September, down from 0.5 per cent within the earlier quarter.
Paul Dales, chief UK economist at Capital Economics, famous that the financial system has grown in simply one of many 5 months to October, and that development is now 0.1 per cent decrease than earlier than Labour got here into energy.
“That implies it’s not simply the Finances that’s holding the financial system again,” he stated. “As an alternative, the drag from greater rates of interest could also be lasting longer than we thought.”
Final week, the OECD minimize its 2024 development forecast for the UK to 0.9 per cent from the 1.1 per cent that was anticipated in September on account of weaker incoming knowledge.
Nevertheless, it expects development to speed up to 1.7 per cent in 2025. That determine is weaker than the two.4 per cent enlargement forecast for the US, however stronger than the 1.3 per cent for the Eurozone.
Based on Friday’s ONS figures, output within the dominant providers sector registered no development in October, with manufacturing contracting 0.6 per cent and development registering a 0.4 fall.
“The danger of a quarterly contraction [in the final three months of the year] is not negligible,” stated Sanjay Raja, economist at Deutsche Financial institution, noting {that a} potential commerce battle when President-elect Donald Trump re-enters the White Home represents a big exterior headwind.
ONS director of financial statistics Liz McKeown stated: “Oil and gasoline extraction, pubs and eating places and retail all had weak months, partially offset by development in telecoms, logistics and authorized corporations.”
Separate knowledge printed on Friday by the analysis firm GfK confirmed client confidence remained low in November, edging up just one level to minus-17 in December.
The ONS reported blended feedback from companies regarding the Finances. These negatively affected stated that turnover was impacted as clients waited for the bulletins from the chancellor.
Nevertheless, others stated that exercise had been introduced ahead in anticipation of varied Finances measures.
UK Prime Minister Sir Keir Starmer lately introduced that he would goal family disposable revenue as a brand new “milestone” for score the success of his financial insurance policies.
Excessive borrowing prices are nonetheless limiting family spending and enterprise exercise, however they’ve come down from their peak after the Financial institution of England minimize rates of interest in August and November to the present 4.75 per cent.
Markets count on extra price cuts subsequent yr as inflation eases from its multi-decade excessive reached in 2022.
James Smith, economist ING, stated he believes the UK financial system remains to be “poised to outpace most of western Europe subsequent yr”, since Labour elevated public spending by greater than 2 per cent of GDP in comparison with the Conservatives’ Finances plans.
Further reporting by George Parker and Jim Pickard
