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The UK economy shrunk by 0.1 per cent in October in a worse than expected performance, underscoring the challenges facing the country’s Labour government as it seeks to reinvigorate growth.
The figures published on Friday compared with the 0.1 per cent expansion forecast by economists polled by Reuters.
The Office for National Statistics data also follows a 0.1 per cent contraction in September, when a cyber attack triggered a shutdown at Jaguar Land Rover.
The pound slipped 0.1 per cent against the dollar to $1.338 after the figures were released.
Chancellor Rachel Reeves has repeatedly promised to boost growth, most recently in November’s Budget, but uncertainty about her tax plans weighed down both business and consumer sentiment in the run-up to the event.
Ultimately, Reeves announced £26bn in tax rises, which are expected to take the overall burden to a record 38 per cent of GDP by the end of the parliament in 2029.
Lindsay James, investment strategist at Quilter, said that “much” of the fall in output “can be put down to the Budget and the deterioration in
consumer confidence, spending and business planning”.
He added that the GDP figures made a Bank of England interest rate cut next week “increasingly likely . . . but with inflation remaining persistently high, the pace at which subsequent cuts can be delivered remains questionable”.
In a reference to the impact of Reeves’ 2024 Budget, which also increased taxes after months of uncertainty, James said that “the endless speculation and leaks have once again put a brake on the UK economy, just as it did last year”.
For the three months to October, the economy also fell 0.1 per cent, the ONS data showed, after a 0.1 per cent expansion in the three months to September.
Liz McKeown, ONS director of economic statistic, said that for the three month period, “production fell again and services growth stalled . . . continuing the recent trend of slowing in this sector”.
She noted that growth in rental, leasing and retail were offset by falls in the wholesale and scientific research sectors and that during October the car industry only made a “slight recovery”.
Overall growth has slowed steadily through the year, down from 0.7 per cent in the first quarter and 0.3 per cent in the second.
Even before Friday’s figures were released, markets attributed a high likelihood to a quarter-point interest rate cut to 3.75 per cent by the BoE next week, partly because of the country’s sluggish growth.
The Office for Budget Responsibility upgraded its UK growth forecast for 2025 to 1.5 per cent last month, compared with the 1 per cent it had expected in March.
The change was partly because of first-quarter growth that itself had been spurred by business activity ahead of US President Donald Trump’s tariffs and house purchases made before increases in stamp duty took effect.
However, the fiscal watchdog revised its 2026 growth expectations down 0.5 percentage points to 1.4 per cent.
The OBR expects quarterly growth to pick up “only gradually” in the near term due to continuing geopolitical uncertainty and subdued business and consumer confidence.