Two Months of Decline
The UK economy shrank by 0.1% in October, marking its second consecutive monthly contraction. While expectations had pointed to a return to growth after September’s drop, the figures reflected a continued slowdown, with multiple sectors such as retail, manufacturing, and hospitality reporting weak performance. The impact of uncertainty surrounding the October Budget played a significant role in this decline, as businesses and consumers remained cautious, holding back on spending and investment.
Sectors Struggling to Grow
The decline in economic activity was widespread, but particular sectors showed notable struggles. The services sector, which is the largest in the UK economy, saw no growth, while manufacturing recorded a sharp 0.6% drop. Construction also declined by 0.4%. On the other hand, industries like real estate and law benefitted from businesses rushing to complete projects before the Budget announcement. Despite this, overall consumer sentiment remains subdued, with shoppers cautious about ongoing inflation and rising costs.
Impact of the Budget and Interest Rates
The political environment, particularly around Chancellor Rachel Reeves’ Budget, has kept businesses and households on edge. Shadow Chancellor Mel Stride attributed the contraction to the Chancellor’s decisions and remarks that have undermined economic confidence. Meanwhile, KPMG’s chief economist pointed out that the uncertainty leading up to the Budget, combined with high interest rates, held back spending.
Mixed Sentiment
Despite the economic dip, consumer confidence saw a slight improvement in December. A survey by GfK revealed people were somewhat more positive about their personal finances for the year ahead. However, views on the economy remained unchanged, with many still unsure about the future direction of the nation’s financial health.
What’s Next for the Economy?
With the economy now growing just once over the past five months, economists are wary of continued stagnation. While the Bank of England’s decision on interest rates next week could offer further clarity, many are waiting to see if the UK can regain momentum in the new year.
Looking Ahead
The UK faces a challenging road ahead, with the potential for further economic strain in 2025. Prime Minister Keir Starmer has set ambitious goals, including sustained growth and improvements in household income, but with inflation and uncertain global factors continuing to impact the economy, it remains to be seen how quickly these objectives can be realised. For now, the UK economy’s path remains uncertain, with further contraction or modest growth possible in the coming months.