- Written by Darshini David and Laura Jones
- BBC Business
The UK economy contracted more than expected in October, as higher interest rates pressured consumers and bad weather battered the country.
The economy fell by 0.3% during the month, after growth of 0.2% in September.
Household spending has been affected by rising interest rates as the Bank of England tries to tackle inflation. It is scheduled to make its next interest rate decision on Thursday.
Meanwhile, retail and tourism were hit by severe weather in October, as Storm Babbitt hit the UK.
Most economists expected the economy to contract by only 0.1%, but the services, manufacturing and construction sectors all contracted.
The UK economy is in recession, and Prime Minister Rishi Sunak has promised to accelerate growth.
But a significant recovery is not expected until January 2025, when the next general election should be held.
Commenting on the latest figures, Chancellor Jeremy Hunt said it was “inevitable” that economic growth would be weak while “interest rates do their job of bringing down inflation”.
But Rachel Reeves, the shadow chancellor, said growth was “falling back, leaving working people worse off”.
The Office for National Statistics said services were the “biggest driver” for autumn October, with contractions seen in the IT, legal and film production sectors.
“These have also been exacerbated by widespread declines in manufacturing and construction, which were reduced in part by severe weather, such as the high winds and flooding seen during Storm Babbitt,” said Darren Morgan, director of economic statistics at the institute.
The latest estimates underscore the continuing impact of the cost of living crisis and the tools used by policymakers.
As of September, the Bank of England had raised interest rates 14 times in a row in an attempt to tame inflation – the pace at which prices rise.
However, while raising interest rates can reduce inflation, it also affects economic growth by making it more expensive for consumers and businesses to borrow money.
Interest rates are at a 15-year high of 5.25% and are expected to remain high for some time.
Against a difficult backdrop, in his final statement in the fall, the Chancellor promised to boost growth by taking measures to accelerate private sector investment.
Mark Mills Goodlett, managing director of used car retailer Winchester Motor Group, told the BBC that companies still face big questions about whether they should invest more in their companies now that interest rates are higher, or wait.
He said the company had seen rapid growth for more than a decade, but that growth had “slowed down in the last couple of years…simply due to uncertainty in the market.”
In the short term, official forecasts are that UK growth will remain somewhat weak due to these high rates.
Yael Selvin, chief economist at KPMG UK, said the UK was likely to escape recession but households would face more pain as about 1.5 million fixed-rate mortgages expire next year and people’s repayments rose.
It believes the Bank of England will not raise interest rates at its next meeting on Thursday and is unlikely to start lowering them until inflation – currently at 4.6% – is close to the 2% target.
In an interview with local news site Chronicle Live during a visit to north-east England, he said he was concerned about the growth potential of the British economy, adding: “There’s no doubt it’s lower than it has been in a lot of my work.” life.”
With the Autumn Statement released, the government’s independent forecasting body lowered its UK growth forecasts, partly due to rising inflation and interest rates.
On Wednesday, the Decision Foundation noted that Britain was a “stagnation” due to poor productivity and a lack of investment in things like skills.
The think tank, which aims to improve the living standards of low- to middle-income people, said the UK grew by just 0.5% over the past 18 months – the weakest rate outside of a recession on record.
The institute’s research director, James Smith, said that achieving “stronger and sustainable economic growth” is the only way to enhance living standards and catch up with their peers.