UK GDP Contracts Amid Economic Uncertainty and Budget Delays
The UK's GDP contracted by 0.1% in October, with the three-month trend also falling by 0.1%, according to the Office for National Statistics (ONS). This output weakness is attributed largely to uncertainty surrounding the upcoming budget plans by Rachel Reeves. Production, construction, and services sectors reported holding back activity while awaiting the budget outcome. Additionally, a cyber-shutdown at Jaguar Land Rover weighed on production, and the services sector remained flat.
The October data is expected to have a negative impact on November figures, raising concerns that the year may end with a quarter of stalled growth and lingering uncertainty about when an economic rebound will occur. In response, the Bank of England is anticipated to cut interest rates by 0.25 percentage points at its next meeting, potentially lowering the headline rate below 4% for the first time since January 2023. However, further cuts remain uncertain.
The Treasury has stated its aim to defy forecasts of stagnant growth, citing pro-growth projects such as the expansions at Heathrow and Gatwick runways and the Sizewell C nuclear power station. Despite this, the budget does not include immediate pro-growth measures and signals forthcoming tax rises. Both the Office for Budget Responsibility (OBR) and the Bank of England expect inflation to ease by 2026, which may facilitate the economy’s recovery from this period of stagnation.
