The UK economy contracted faster than previously thought in October, with Britain’s manufacturing and construction sectors hit by a worse-than-expected recession.
Economists said it would be too early to say the country was heading toward recession, but they warned that the “ghost” would loom over Britain for the foreseeable future.
This comes as the Bank of England prepares to keep interest rates at 5.25 percent on Thursday, in an attempt to combat high inflation without pushing Britain into recession.
The Office for National Statistics (ONS) said GDP fell by 0.3 per cent during October, down from growth of 0.2 per cent in September. Experts had expected the GDP to contract by only 0.1 percent.
Labour’s shadow chancellor Rachel Reeves said the data showed Rishi Sunak’s government had “failed” to grow the economy as promised.
“Rishi Sunak ended the year having failed to deliver on his promise to grow the economy. Economic growth is slipping, Ms Reeves said, accusing Mr Sunak of being “too weak to deliver results for Britain”.
Treasury Secretary Jeremy Hunt defended his policies and claimed it was “inevitable” that growth would fall while interest rates did their work to bring down inflation.
Referring to his tax cuts, Hunt added: “But the significant business tax cuts announced in the Autumn Statement mean the economy is now well placed to start growing again.”
Thomas Pugh, of consultancy RSM UK, said lower inflation and rising wages were likely to boost the economy in the final two months of the year. But he said the big picture “is still one of a stagnant economy.”
The expert added: “We doubt that growth will recover significantly until the end of next year, which means that the specter of recession will loom over the UK economy for a long time yet.”
Martin McTague, president of the Federation of Small Businesses, said the figure was “disappointing news” that “will leave many feeling discouraged”.
The worse-than-expected reading comes as the Bank of England is set to set a new interest rate on Thursday. Policymakers are unlikely to raise interest rates at this week’s meeting.
The ONS data will give them more certainty that interest rates are high enough to be ‘restrictive’ and dampen the economy. They also realize that the full impact of the latest wave of interest rate hikes has yet to be felt.
People who have taken out new mortgages, had to remortgage their property or who have a tracker mortgage will see their monthly payments rise significantly.
About five million mortgages will still be up for renewal by the end of 2026. So far, these people have avoided the blow of rising interest rates.
But interest rate setters on the Monetary Policy Committee, including Governor Andrew Bailey, have repeatedly stressed that it is too early to talk about cutting interest rates.
“October’s GDP decline adds to the growing list of recent negative data surprises, but we remain skeptical that the MPC will change its tune and signal its desire to cut next year’s interest rate as soon as it meets this week,” said Pantheon’s Samuel Tombs. . total economy.
While the larger services sector contributed to the slowdown in October, the production sector declined more quickly. Production saw a decline of 0.8 percent due to the slowdown in manufacturing caused in part by the computer, electronics and optical products sectors. The construction sector experienced one of the wettest Octobers in the last 200 years.
Suren Thero, director of economics at the Institute of Chartered Accountants in England and Wales, said the latest GDP figures “set out the Prime Minister’s goal of getting the economy to grow”. [by the end of the year] in danger”.
The No 10 claimed the UK economy was “over-performing”, pointing to long-term figures over the past decade – but did not rule out the possibility of a recession next year.
Mr Sunak’s spokesman said: “We would never speculate on the future outlook. “We have outperformed in recent months and years, and have grown faster than France, Germany, Italy and Japan since 2010.”
Asked whether Mr Sunak believed in his promise to grow the economy and the other five pledges, the No 10 official said: “The Prime Minister remains committed to the five pledges.”
Some Conservatives have urged Sunak to find a better economic forecasting system in a bid to cut taxes further. Conservative MP Greg Smith asked at PMQs: “Will he commit to finding a better system of financial modeling so we can cut taxes?”
Sunak defended the Office for Budget Responsibility, saying it had brought “greater transparency and independence to the forecasts on which government policy is based”.