UK economy unexpectedly contracts by 0.1% in October

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Britain’s economy contracted by 0.1 percent in October, a worse-than-expected performance, highlighting the challenges facing the country’s Labor government as it seeks to revitalize growth.

The figures published on Friday compare with the expectations of economists polled by Reuters for growth of 0.1 percent.

The ONS data also tracks a 0.1 per cent contraction in September, when a cyberattack led to the closure of Jaguar Land Rover.

The pound sterling fell 0.1 percent against the dollar to $1.338 after the figures were published.

Chancellor Rachel Reeves has repeatedly promised to boost growth, most recently in the November Budget, but uncertainty over her tax plans has weighed on business and consumer sentiment in the run-up to the event.

Ultimately, Reeves announced £26 billion in tax rises, which are expected to raise the overall burden to a record 38 per cent of GDP by the end of the parliamentary session in 2029.

Lindsay James, investment strategist at Quilter, said “a lot” of the decline in production “can be traced back to the budget and the deterioration in the economy.”
Consumer confidence, spending and business planning.

He added that GDP figures make a Bank of England rate cut next week “increasingly likely… but with inflation remaining persistently high, the pace at which subsequent cuts can be implemented remains questionable.”

Pointing to the impact of Reeves’ 2024 Budget, which also led to a tax rise after months of uncertainty, James said that “endless speculation and leaks have once again held back the UK economy, just as they did last year.”

In the three months to October, the economy also fell by 0.1 per cent, after expanding by 0.1 per cent in the three months to September, ONS data showed.

Liz McKeown, director of economic statistics at the Office for National Statistics, said that over the three-month period “output fell again and growth in services stalled… continuing the recent trend of slowdown in this sector”.

She pointed out that the growth in rents, leasing and retail was offset by declines in the wholesale and scientific research sectors and that the automobile industry during the month of October achieved only a “slight recovery.”

Overall growth slowed steadily during the year, down from 0.7 percent in the first quarter and 0.3 percent in the second quarter.

Even before Friday’s figures were published, markets were highly likely that the Bank of England would cut interest rates by a quarter of a percentage point to 3.75 percent next week, partly due to slowing growth in the country.

The Office for Budget Responsibility updated its UK growth forecast for 2025 to 1.5 per cent last month, compared to the 1 per cent it forecast in March.

This change is partly due to first-quarter growth which was itself driven by trading activity before US President Donald Trump’s tariffs and home purchases before stamp duty increases came into effect.

However, the financial watchdog revised its growth forecast for 2026 down 0.5 percentage points to 1.4 percent.

The Office for Budget Responsibility expects quarterly growth to rebound “only gradually” in the near term due to continued geopolitical uncertainty and weak business and consumer confidence.