UK Economy contracted faster than expected in October, new data suggests
The size of the UK economy contracted in October as the manufacturing and construction sectors were hit by poor weather.
Gross domestic product (GDP) is thought to have fallen 0.3% during the month, down from 0.2% growth in September, the Office for National Statistics (ONS) said.
It came as all three of the main sectors that the ONS tracks fell into negative territory for the first time since July. Economists had expected GDP to contract by just 0.1%.
“October … saw contractions across all three main sectors,” said ONS director of economic statistics, Darren Morgan.
“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.”
Production
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% 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.
Interest rates
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.
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.
Shadow chancellor Rachel Reeves said that the data shows that the Prime Minister was not growing the economy.
“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,” she said.
“After 13 years, the Conservatives have failed on the economy and after the chaos of the past few weeks Rishi Sunak is clearly too weak to deliver for Britain.”
Chancellor of the Exchequer Jeremy Hunt said: “It is inevitable GDP will be subdued whilst interest rates are doing their job to bring down inflation.
“But the big reductions in business taxation announced in the autumn statement mean the economy is now well placed to start growing again.”
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No10 press release on this.
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I always thought the ONSs role was to collate the various statistics to measure the economy.
Now it seems it is also mandated to get the excuses in for the government, like blaming the weather to distract from the government’s failure.
Economy has tanked for ages. Only the inclusion of non value adding activity has protected the illusion of “all is well, or not bad”. Any country that relies so heavily on external supply chains and thinks it can float happily on a bed of so called service industries is living in a long term delusionary trip. We are now into the wakey wakey phase.
The Westminster government has no idea. There is no point in cutting the higher rates of taxes of personal income for the very high earners. It has been proven not to increase economic activity. Most high earners spend their salaries overseas. If you intend to help business then its corporation tax you may need to cut. Cutting income/NI taxes by a small percentage hardly has any effect, especially to the average wage while cutting public services. If you desire to cut taxes for the average person then increase the lowest threshold before one actually starts to pay tax is certainly… Read more »
The problem with Jeremy Hunt is that he fundamentally does not understand economics and how money is created from debt. If you cut government spending, raise interest rates and cut private borrowing, and have a trade deficit, then you have no new money being created. That means recession. The macro economy is not a corner shop. Hunt’s austerity has fatally damaged the economy and NHS. The lack of investment in energy has caused higher energy bills driving up inflation. 13 years of Tory austerity and we are more in debt than ever with little to show for it. Never have… Read more »