The Office for National Statistics (ONS) has warned the UK economy contracted for the second consecutive month of negative growth which should now put the UK firmly on recession watch.
The Chancellor Rachel Reeves said this is “disappointing” as the Labour government wants to grow the economy so that people will be “feeling better off with more money in their pockets.”
The ONS said that gross domestic product (GDP) contracted by 0.1% in October and pubs and restaurants had a very poor month due to uncertainty pre-Budget.
The Chancellor said, “The numbers on today’s GDP are disappointing, but it’s not possible to turn around more than a decade of poor economic growth and stagnant living standards in just a few months.”
She added, “Growth is the number one mission of this Government – economic growth that results in families feeling better off with more money in their pockets – and we’re driving that economic growth and we hope that those numbers will start to improve because of the policies that we’re pursuing in the months ahead.”
Liz McKeown, the ONS’s director of economic statistics, said: “The economy contracted slightly in October, with services showing no growth overall and production and construction both falling.
“Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms.
“However, the economy still grew a little over the last three months as a whole.”
Debapratim De, director of economic research at Deloitte, said, “Growth is expected to remain sluggish over the winter months, before the budgetary boost to public spending shows up in the GDP figures.
“Despite the downbeat assessment, a rate cut by the Bank of England seems unlikely this month as policymakers remain cautious about the inflationary impulse from the Budget and the wider geopolitical environment.”
Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said, “The second successive monthly fall in economic activity in October should put the UK firmly on recession watch. Indeed, output per head may already be falling for the second quarter in a row.
“The loss of momentum is not contained to the UK. Indeed, the manufacturing sector appears to be struggling even more in the rest of Europe, notably Germany and France.
“Nonetheless, the new government’s negative rhetoric over the summer and the anticipation of a tight Budget have damaged sentiment and encouraged many households and business to put spending, hiring and investment on hold.
“One of the few sectors to do well in October was legal services, suggesting that the Budget was at least good news for tax lawyers.
“The Budget itself was even tougher than expected. The large increases in spending, taxation and borrowing were bound to increase uncertainty. It is simply not possible to shift two per cent of national income from the private to the public sectors without disrupting the economy, especially given the gap in productivity between the two.
“There are some glimmers of light. The latest GfK survey suggests that consumer confidence actually improved in December, with sentiment on the outlook for personal finances turning positive again. Real incomes are still likely to recover further and unemployment is still low.
“But surveys of business confidence suggest that firms remain gloomy, even before the main increases in tax and other costs in the Budget kick in next April.
“The Bank of England’s staff forecast of 0.3 per cent growth in the fourth quarter is looking even more optimistic. Zero now seems more realistic. At some point, the Monetary Policy Committee will shift to worrying much more about the downside risks to growth and inflation – perhaps not next week, but soon.”
