By Ben Kerrigan-
The United Kingdom’s economy suddenly contracted at a faster rate than anticipated in October, marking a decline of 0.3% compared to the 0.2% growth observed in September, according to the Office for National Statistics (ONS).
The unexpected downturn in the manufacturing and construction sectors has led economists to express concerns of a potential recession.
The Bank of England is poised to maintain interest rates at 5.25% in an effort to control inflation without triggering a recession. Experts have warned of the prospect of economic downturn looms over Britain for the foreseeable future.
Labour’s shadow chancellor, Rachel Reeves, seized the opportunity to criticize Chancellor Rishi Sunak’s economic policies, asserting that the government had “failed” to fulfill its promises of economic growth. Reeves argued that the data reflects a backward trend in economic growth, accusing Sunak of being “too weak to deliver for Britain.”
Chancellor Jeremy Hunt has defended the government’s actions, stating that subdued growth is “inevitable” while interest rates work to combat inflation.
Hunt pointed to recent tax cuts as a strategy to reignite economic growth, emphasizing that the reductions in business taxation position the economy for a rebound.
Thomas Pugh of consulting firm RSM UK acknowledged the potential for a boost in the economy in the final months of the year due to declining inflation and rising wages.
However, he cautioned that the overarching narrative remains one of a stagnating economy, predicting that significant growth might not occur until late next year.
Federation of Small Business chair Martin McTague expressed disappointment over the figures, stating that the news will leave many feeling flat. The gloomy economic outlook is expected to influence the Bank of England’s decision-making on interest rates, with policymakers likely to maintain a cautious stance.
The unexpected contraction in October’s GDP comes at a crucial time as the Bank of England convenes to set new interest rates. The decision-makers, aware that the full impact of recent interest rate hikes has not been fully realized, are likely to view the current rates as “restrictive” for economic growth.
While the services sector contributed significantly to the economic slowdown in October, the production sector experienced the most rapid decline, with output falling by 0.8%.
Factors contributing to the decline included a slowdown in manufacturing, particularly in computer, electronics, and optical products, as well as adverse weather conditions affecting the construction sector.
Downing Street claimed that the UK economy had “overperformed” over the past decade, but the uncertainty about the future remains high. Chancellor Rishi Sunak’s spokesperson emphasized the commitment to the government’s five pledges while refraining from speculating on future predictions.
The upcoming months will be crucial for policymakers and the government as they navigate the complex economic landscape and work towards ensuring the stability and growth of the UK economy.