Rate Cut Likely as UK Economy Stalls Again

Britain’s economy unexpectedly contracted in October.

This marks the second consecutive month of decline, delivering a significant blow to the Labour government’s growth plans.

A Surprise Contraction

The Office for National Statistics (ONS) released the new data on Friday. It revealed that Gross Domestic Product (GDP) fell by 0.1 per cent in October.

This decline follows an identical 0.1 per cent contraction in September. The figures defied analyst forecasts, which had predicted a return to growth of 0.1 per cent.

Manufacturing Rebounds, Spending Freezes

The data presented a mixed picture. Manufacturing actually rebounded during the month. This was largely driven by carmaker Jaguar Land Rover, which resumed full operations after a cyberattack disrupted production in September.

However, a broader spending freeze overshadowed this recovery.

Analysts noted that businesses and consumers cut back spending drastically. This was largely due to anxiety ahead of the government’s annual budget.

“Business and consumers were braced for tax hikes and the endless speculation and leaks have once again put a brake on the UK economy,” said Lindsay James, an investment manager at Quilter.

Political and Policy Fallout

These figures pile pressure on Prime Minister Keir Starmer and Finance Minister Rachel Reeves.

The Labour government raised taxes in last month’s budget to address state debt and fund public services. However, the economic outlook has darkened significantly. New data released alongside the budget downgraded Britain’s growth prospects from next year through to the end of 2029.

Reeves faces intense criticism for her fiscal policies:

• Business Taxes: Her decision to raise taxes on businesses last year is blamed for stifling growth.
• Worker Taxes: She followed this in November with fresh hikes targeting workers.

Rate Cut Incoming?

The dismal economic performance has shifted financial expectations.

Analysts believe Friday’s data strengthens the case for monetary easing. Many now expect the Bank of England to cut interest rates next week to help stimulate the stalling economy.