UK Economy Shrinks for Second Month in a Row
The UK economy has shrunk for the second consecutive month, with official data released by the Office for National Statistics (ONS) on Thursday confirming a 0.1% contraction in October. This decline follows a similar contraction in September, defying earlier predictions of a recovery.
The ONS highlighted weak performance across key sectors like pubs, restaurants, and retail, pointing to “stalled or declining” activity. Chancellor Rachel Reeves expressed disappointment at the figures, though she emphasized that the government has laid out policies aimed at long-term economic growth.
Shadow Chancellor Mel Stride attributed the ongoing downturn to the chancellor’s decisions, arguing that the current trajectory reflects poor policy and eroded confidence.
October’s contraction coincided with uncertainty ahead of the Budget announcement on October 30. Businesses and consumers reportedly held back on spending, as noted by Yael Selfin, KPMG’s chief economist. However, certain industries like real estate and legal services experienced a temporary uptick as they rushed to complete work before the Budget.
Consumer sentiment remains mixed. A December survey by GfK revealed marginal optimism about personal finances for 2025, though views on the broader economy have stagnated. Neil Bellamy of GfK commented, “People remain unclear about where the economy is headed.”
Despite the Bank of England lowering interest rates twice this year to 4.75%, borrowing costs remain elevated compared to recent years. Economists at Capital Economics cautioned that high interest rates might be dampening growth longer than anticipated. The Bank’s next interest rate decision is due next week, but further cuts are not expected until 2025.
The services sector, which constitutes the majority of the UK economy, reported no growth in October. Meanwhile, manufacturing and construction saw sharper declines, with drops of 0.6% and 0.4%, respectively. Small businesses continue to struggle under inflationary pressures, with shop owners like Rick Gaglio describing 2024 as an exceptionally challenging year for retail.
Sir Keir Starmer, who became prime minister in July, has acknowledged the Budget’s challenges but insists his policies are designed to foster sustainable growth. He recently reiterated his goal of achieving the highest sustained economic growth among G7 nations and pledged to raise household disposable income.
For now, the UK economy has grown in just one of the past five months. While the ONS data for October is preliminary and subject to revision, the outlook remains clouded by high inflation, cautious consumer spending, and persistent uncertainties.
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