The UK economy unexpectedly contracted by 0.1% in October, according to figures from the Office for National Statistics.
Friday’s data release fell below expectations of a modest 0.1% increase, and follows on from September’s similar 0.1% contraction.
Luke Bartholomew, deputy chief economist at abrdn, says the ‘disappointing’ GDP report will increase concerns that the economy lost steam in the run-up to the Budget.
“Monthly GDP data are very volatile, so it is important not to put too much weight on any one report. But this slowing is consistent with other economic data, all of which point to the economy having slowed considerably over the second half of the year.
“Nonetheless, the Bank of England is still likely to keep interest rates on hold next week, continuing with its ‘gradual’ mantra about rate reductions. However, it is certainly possibly that the pace of rate cuts speeds up next year if the economy continues to slow and the labour market deteriorates more rapidly.”
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Despite the unexpected decline, Hetal Mehta, head of economic research at St. James’s Place, is more positive on the UK’s prospects for growth next year.
She said: “Today’s GDP data will be disappointing for the government especially as the decline follows a contraction in September. However monthly data are noisy and some slowdown from strong growth earlier in the year was to be expected.
“With credit conditions loosening, interest rates moving lower and increased government spending on its way, the UK economy should experience modest growth next year. The positive signals from the housing market are a good cross-check for the economy and shows some resilience.”
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Scott Gardner, investment strategist at J.P. Morgan owned digital wealth manager, Nutmeg, added: “While it may look like a bleak winter for the UK economy, the outlook for next year is more positive. A predicted recovery in the housing market furthered by falling interest rates, higher construction levels, and the potential for increased activity in the lead up to April’s stamp duty changes should hopefully turbocharge the economy.
“Some changes for businesses announced in the Autumn Budget, in particular to National Insurance contributions, could present a headwind for growth in the middle of the year. That said, the UK economy is expected to grow by 2% next year, outpacing both France and Germany.”
