UK economy unexpectedly shrunk before Budget
Pedestrians pass British Union flag designs in advertisements.
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According to official figures released on Friday, the British economy unexpectedly shrank by 0.1 percent in the three months to October.
Economists were expecting 0 percent growth during this period. This follows an expansion of 0.1% in the three months to September.
The Statistics Office noted that services production stalled, construction output fell 0.3%, and manufacturing output fell 0.5% “largely due to the decline in the manufacture of motor vehicles, trailers and semi-trailers during this period.”
The figures come after British Chancellor Rachel Reeves announced a series of tax increases in her eagerly awaited Budget last month as she sought to plug a “black hole” in the country’s finances and stimulate much-needed economic growth.
“October’s GDP hit underscores just how challenged the UK economy is at a time when the government is seeking some form of growth,” Lindsay James, investment strategist at asset management firm Quilter, said in a note.
“This figure also misses already low expectations and does not bode well for next month’s figure either.”
James, who is looking forward to the central bank’s interest rate decision next week, said Friday’s figures “make it increasingly likely that the Bank of England will be forced to cut interest rates when it meets next week, but the pace of subsequent interest rate cuts remains doubtful as inflation remains persistently high.”
The Bank of England’s Monetary Policy Committee will meet on December 18 and it is expected to agree on a quarter-point cut in the interest rate to 3.75% as inflation cools.
KPMG UK chief economist Yael Selfin said she expected growth to remain weak for the rest of the quarter “with activity in November likely to be constrained due to ongoing Budget uncertainty”.
“Overall, we expect GDP growth to remain stable in the last quarter of this year,” he added.
