November 6, 2024, Bank of England, City of London, London, England. The City of London is a city, county and local authority area that includes London’s main central business district, the CBD. The City of London is commonly referred to simply as the City and colloquially known as the Square Mile. (Photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Photography | Getty Images
Britain’s economy contracted unexpectedly in October amid heightened uncertainty from businesses and consumers ahead of the newly elected government’s budget announcement.
The ONS said on Friday that gross domestic product fell by an estimated 0.1% on a monthly basis, with officials attributing the drop to lower output. A Reuters poll of economists predicted gross domestic product (GDP) would rise by 0.1% in October.
This is the country’s second consecutive year of economic recession, following a 0.1% decline in gross domestic product (GDP) in September.
Real GDP is estimated to have grown by 0.1% in the three months to October compared with the previous three months to July, the ONS said.
Sterling fell on the disappointing results, trading 0.3% against the US dollar at $1.2627 by 7:45 a.m. London time.
In a statement on Friday, UK Chancellor of the Exchequer Rachel Reeves acknowledged October’s figures were “disappointing” but defended the government’s divisive economic strategy.
“We have introduced policies to deliver long-term economic growth,” he said, citing changes such as capping corporate taxes and launching a 10-year infrastructure strategy.
In late October, Reeves released the government’s first budget since taking over from the long-held Conservative government in July.
The budget included plans for Chancellor Keir Starmer’s government to increase taxes by 40 billion pounds ($50.5 billion). Mr Reeves said at the time that this would be achieved through an increase in national insurance contributions (tax on income) for employers, as well as a number of new policies, including an increase in capital gains tax and the abolition of winter fuel payments for pensioners. He said it would be.
Some policies have faced widespread criticism. For example, it has warned that a rise in National Insurance payroll tax will make businesses less likely to hire new workers, with a report this week from job site Indeed showing that the policy is already increasing the number of UK job openings. It has been suggested that it has an influence on
Impact on interest rates
October’s GDP figures deal another blow to the UK economy, which is still struggling to contain inflation, with new figures released on Friday showing consumer confidence is also weak. .
However, market players are not convinced that the latest data will change the Bank of England’s commitment to “gradual” interest rate cuts.
The central bank cut interest rates by 25 basis points at its most recent meeting in November and is expected to keep rates unchanged at 4.75% at next week’s meeting, according to overnight index swap data.
Thomas Pugh, UK economist at RSM, said the new figures, coupled with the UK’s inflation rate creeping towards 3%, showed the UK was at risk of moving “back into stagflation territory”. said.
“We still expect the economy to accelerate again into 2025, but our forecast of 0.3% sequential growth in the fourth quarter appears too ambitious,” he said. said.
“In any case, I don’t think today’s numbers are bad enough to surprise the market with an early Christmas gift from the Bank of England with a rate cut at its December 19th meeting.”
Meanwhile, Suren Till, head of economics at the Institute of Chartered Accountants in England and Wales, agreed that a Christmas rate cut was “doubtful”.
“Despite these gloomy numbers, the chances of a rate cut this month remain low. Some policymakers are sufficiently concerned about the recent acceleration in inflation to postpone policy easing again until February,” Thirou said in a note. It’s very likely.”
