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October saw the UK’s economy shrink for a second consecutive month, with concerns about the Budget contributing to this. Official data released showed a 0.1% contraction, despite expectations of growth after September’s decline. The Office for National Statistics (ONS) stated that the fall indicated that some services had stalled or declined across pubs, restaurants, and retail sectors. Shadow Chancellor Mel Stride commented that Chancellor Rachel Reeves’ decisions and constant talk about the economy had “starkly impacted growth”. Reeves described the figures as “disappointing” but noted that the government’s policies were aimed at delivering long-term economic growth.
KPMG’s chief economist Yael Selfin confirmed that activity had been held back by uncertainly regarding the Budget as businesses and consumers hesitated on spending. However, sectors such as accountancy, law firms, and real estate brought forward work before the Budget announcement, according to ONS data. Capital Economics confirmed that the economy had grown only once in the past five months and is now 0.1% lower than it was before Labour’s July election victory.
Capital’s chief UK economist Paul Dales warned that “the drag from higher interest rates may be lasting longer than we thought,” stating that potentially, interest rates also contribute to the downturn seen in the economy. Although the Bank of England cut interest rates twice this year, the current rates remain high compared to recent years. The last interest rate decision of 2024 is due next week, with economists predicting that there is no possibility of borrowing costs being reduced again until next year.
It is important to understand that over the previous three months, however, the economy had grown by 0.1%. While October’s initial estimate by the ONS is subject to major revisions, the manufacturing and construction industries recorded declines of 0.6% and 0.4%, respectively. In contrast, the services sector that constitutes the bulk of the UK economy had zero growth. According to Rick Gaglio, owner of Twisted Fabric, a menswear store in Hitchin, Hertfordshire, customers are still cautious as the prices are relatively high amid inflation. Meanwhile, Prime Minister Sir Keir Starmer has pledged to increase real disposable household income per person and build 1.5 million homes in England
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