British Economy Contracts in October
The British economy contracted by 0.1% in October, according to official figures. This surprise decline in gross domestic product (GDP) follows a similar unexpected fall of 0.1% in September and 0% growth in August.
Economic Performance
Economists had forecast GDP growth of 0.1% for October, but the actual figure fell short of expectations. The Office for National Statistics (ONS) figures represent further bad news for the Chancellor about the state of the British economy. Commentators had warned that consumer spending was likely to be subdued in advance of the November budget amid concerns about the impact of possible measures on households and businesses.
Factors Affecting GDP
The UK’s GDP has also been severely affected by the disruption to car production caused by a cyberattack on Jaguar Land Rover. The ONS said Britain’s services sector fell 0.3% in October, while construction fell 0.6%. However, production increased by 1.1%. GDP also fell 0.1% on a rolling three-month basis through October.
Analysis and Reaction
The ONS director of economic statistics said: “Within manufacturing, there was continued weakness in car manufacturing, with the industry recovering only slightly in October from the significant fall in production in the previous month.” Services overall reported no growth over the past three months, continuing the recent slowdown trend in the sector. There were declines in wholesale trade and scientific research, offset by increases in rental and leasing and retail.
Interest Rate Cut
Commentators blamed rumors and leaks ahead of the budget for dampening demand. An interest rate cut is now seen as likely, with one expert saying it is “nailed”. Speculation about possible Budget announcements had a numbing effect on consumers and businesses in the run-up to the Chancellor’s address at the end of November.
Economic Outlook
The data increased the likelihood of a cut by the Bank of England in interest rates next week. With these gloomy numbers likely to further fuel interest rate setters’ fears about the health of the UK economy, an easing of monetary policy in December seems obvious. The numbers are “extremely worrying” and are a direct result of economic mismanagement, according to the Tory shadow chancellor. A Treasury spokesman said: “We are committed to exceeding growth forecasts and creating good jobs to make everyone better off, while helping us invest in better public services.”
