The UK economy registered an unexpected contraction of 0.1% over the three months to October, according to official data released Friday. The Office for National Statistics (ONS) reported that the nation’s gross domestic product shrank during this period, falling short of economist predictions, which had forecast no growth.
October saw a similar monthly decline of 0.1%, against projections for a modest uptick. The ONS noted that the UK economy has not recorded any growth since June, underscoring a continued period of economic stagnation.
This subdued outlook casts a shadow over the recent efforts by Chancellor Rachel Reeves, who last month unveiled new tax increases aimed at addressing the fiscal deficit and stimulating growth. The government now faces mounting challenges, as poor performance in key sectors continues to weigh on prospects for recovery.
The services sector, a mainstay of the UK economy, saw an unexpectedly sharp drop, falling 0.3% in October, while construction output also retreated by 0.3%. Production output slipped 0.5%, primarily due to a contraction in motor vehicle manufacturing. According to the ONS, retailers struggled during the month, significantly contributing to the weakness in services.
Market reaction was swift, with the pound declining slightly against the US dollar after the data release. The economic setbacks further cloud the Bank of England’s (BoE) initial projection that GDP would grow by around 0.3% in the final quarter. Investors are now overwhelmingly pricing in a BoE rate cut when the central bank’s Monetary Policy Committee meets on December 18, with market probability of such a move at nearly 90%.
Despite the contraction, the finance ministry reiterated its commitment to defy weak growth forecasts and bolster job creation. On a year-on-year basis, economic output in October was 1.1% higher, though this fell short of the anticipated 1.4% expansion.
Looking ahead, analysts anticipate that the BoE will lower rates next week, especially as inflation shows signs of cooling, though there is caution around how quickly further reductions may follow. KPMG UK’s chief economist Yael Selfin expects subdued growth to persist through the year’s end, given continued uncertainty following the budget.
