The UK economy shrank for the second month
The UK economy contracted for the second month in a row in October as concerns over the Budget continued to impact confidence.
Despite expectations that the economy would return to growth after the decline in September, official figures showed a decrease of 0.1 percent.
The Office for National Statistics (ONS) said activity had stopped or decreased, with pubs, restaurants and retail across sectors reporting “weak months”.
Finance Minister Rachel Reeves said the figure was “disappointing” but added: “We have put in place policies that will deliver long-term economic growth.”
Shadow Chancellor of the Exchequer Mel Stride said: “This fall in growth shows the dramatic impact of the Chancellor of the Exchequer’s decisions and continued disparagement of the economy.” he said.
KPMG Chief Economist Yael Selfin said activity was “held back by uncertainty ahead of the Budget on 30 October” as businesses and consumers cut back on spending.
However, according to the Office for National Statistics (ONS), some sectors such as real estate, law firms and accounting brought forward their work before Reeves announced the budget.
Separately, a December survey measuring consumer confidence found that people were slightly more positive about their personal finances in the year ahead.
However, the findings of market research company GfK revealed that “views on the economy have not changed since November, meaning people do not know where we are going.”
“In summary, what is weighing on consumer confidence is the ongoing negative outlook on the UK’s overall economic situation,” said Neil Bellamy, Director of Consumer Insights at NIQ GfK.
Shortly after becoming prime minister in July, Sir Keir Starmer warned that the Budget would be “painful” after 14 years of Conservative Party rule.
He later denied allegations that he was disparaging the economy.
The economy has grown just once in the last five months, ONS figures show.
Capital Economics reported that GDP was 0.1 per cent lower than before Labor won the election in July.
“This shows that the Budget is not the only thing holding the economy back,” said Paul Dales, Capital’s chief UK economist.
“Instead, the pressure from higher interest rates may last longer than we think.”
The Bank of England has cut interest rates twice this year, but at 4.75 per cent they are still quite high compared to recent years.
The bank is expected to meet next week for the final interest rate decision of 2024, but it is not expected to reduce borrowing costs again until next year.
Economists have warned against placing too much emphasis on the October reading. This is the first estimate of economic growth made by the ONS and is subject to revision.
The economy grew by 0.1% in the three months to October.
‘People are still cautious’
While the largest decrease in activity in the manufacturing industry was recorded in October with a decrease of 0.6 percent, it was followed by the construction sector with a decrease of 0.4 percent.
Meanwhile, the service sector, which makes up the bulk of the UK economy, stagnated with zero growth.
Rick Gaglio, owner of menswear store Twisted Fabric in Hitchin, Hertfordshire, said “people are still being cautious” and prices are still relatively high.
“This is all due to inflation and customers are feeling these price increases,” he said.
Gaglio also said retail sales slowed during the summer months due to wetter-than-usual weather.
“It’s been hard,” he said. “Overall, 2024 has been very, very difficult for small businesses, and we just want to hear more good news, not bad news.”
Sir Keir said he wanted the UK to deliver the highest sustainable economic growth among the G7 rich countries.
Last week, it set additional “milestones” to allow people to measure the government’s progress. In the economy, he promised to increase real household disposable income per capita.
He also reiterated his promise to build 1.5 million houses in England.
