GDP Falls by 0.3% in October
Britain’s economy experienced a contraction in October, according to official data released on Wednesday. This development puts the Bank of England’s commitment to maintaining high interest rates to the test. The Office for National Statistics reported a 0.3% decrease in Gross Domestic Product (GDP) compared to September, which differed from the predictions of economists surveyed by Reuters. Notably, this is the first monthly decline in GDP since July. As a result of this news, the pound weakened against the U.S. dollar and the euro.
Investors Anticipate Interest Rate Cuts
Investors have reacted to other indicators of economic cooling in the UK by advancing their expectations for the timing of the Bank of England’s initial interest rate cut. The ONS revealed that GDP had stagnated in the three months leading up to October, falling short of the 0.1% increase predicted by the Reuters poll. While the UK’s economy had managed to avoid contraction during the July-to-September period, some analysts believe it may now be at risk of a mild recession in late 2023 or early 2024 due to the Bank of England’s interest rate hikes. Throughout most of this year, the economy has remained stagnant, with economic output returning to January levels.
Contraction Across Key Sectors
The Office for National Statistics’ latest data highlighted contractions in vital sectors of the UK economy in October. The services sector, which holds significant dominance, shrunk by 0.2%, while manufacturing and construction contracted by 1.1% and 0.5% respectively. Despite the economy appearing 2.0% larger than pre-pandemic levels, this recent performance underscores persistently weak living standards.
Economic Growth Challenges Ahead
Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt have both pledged to expedite economic growth. However, it is unlikely that any significant improvement will materialize before a national election, which Sunak must call before January 2025. Suren Thiru, the Director of Economics at ICAEW, an accountancy body, warned that the negative October outcome jeopardizes the prime minister’s objective to boost economic growth, especially with the prospects of high inflation and borrowing costs likely to suppress economic activity in November and December.