The UK economy unexpectedly contracted by 0.1% in October

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The UK economy unexpectedly contracted by 0.1% in October, due to a decline in manufacturing, dealing a blow to the Labor government’s economic program.

Monthly change in GDP released by the Office for National Statistics on Friday was below the 0.1% growth forecast by economists polled by Reuters. It followed a 0.1% decline in the previous month.

The British pound fell 0.29% against the dollar immediately after the data was released.

The figures underline the economic challenge for the new Labor government, which won Britain’s general election in July with an explicit pledge to “ensure the highest levels of sustainable growth”. in G7”.

“We are determined to deliver economic growth because higher growth means higher living standards for everyone, everywhere,” Prime Minister Rachel Reeves said on Friday.

“While this month’s figures are disappointing, we have put in place policies to deliver long-term economic growth,” she added.

Last week, the OECD cut its 2024 UK growth forecast to 0.9% from 1.1% expected in September due to weaker incoming data.

However, they predict growth will increase to 1.7% by 2025. That is weaker than the US’s 2.4% growth forecast but stronger than the Eurozone’s 1.3%.

Friday’s figures showed a weak start to the fourth quarter after economic growth slowed to 0.1% year-on-year in the three months to September, down from 0.5%. in the previous quarter.

Output in the main services sector did not grow in October, with output down 0.6% and construction down 0.4%.

ONS director of economic statistics Liz McKeown said: “Oil and gas mining, pubs, restaurants and retail all had weak months, partly offset by growth in telecommunications companies , logistics and legal”.

Separate data released on Friday by research firm GfK showed consumer confidence remained low in November, rising just one point to minus 17 in December.

British Prime Minister Sir Keir Starmer recently announced that he would use household disposable income as a new “landmark” to judge the success of his economic policies.

High borrowing costs are still restraining household spending and business activity, but they have fallen from their peak after the Bank of England cut interest rates in August and November to the current 4.75%.

Markets expect more interest rate cuts next year as inflation eases from multi-decade highs reached in 2022.

In the three months to September, GDP per capita, a measure of living standards, remained 0.7% lower than in the fourth quarter of 2019, before the pandemic, suggesting a negative impact on growth from Covid-19 and living expenses. crisis in the past 5 years.

Marion Amiot, senior economist at S&P Global Ratings, said: “We expect deflation and interest rate cuts to stimulate growth in the UK over the next 12 months as consumers reduce savings and firms benefit from lower funding costs.”

This is a developing story