The UK economy unexpectedly contracted for a second straight month in October, underlining the fragility of growth as households and businesses curbed activity ahead of the Chancellor’s autumn budget.
According to the Office for National Statistics, gross domestic product fell 0.1 percent in October, matching the decline in September. Economists had expected the economy to return to moderate growth and had forecast growth of 0.1 percent at the start of the fourth quarter.
The data showed momentum failed to recover after disruptions caused by a cyberattack in September that crippled production at Jaguar Land Rover for much of the month. On a rolling three-month basis, output also fell 0.1 percent, pointing to a broader loss of economic traction.
Construction was the worst-performing sector, with activity falling 0.6 percent in October, while the dominant services sector contracted 0.3 percent, its worst performance in three months. Manufacturing output rose 1.1 percent as automobile production picked up after the end of the JLR shutdown and vehicle production rose 9.5 percent.
Economists said the renewed slowdown reflected increasing caution across the economy ahead of the Budget, along with a cooling labor market and persistently high inflation. Callum McLaren-Stewart, an economist at Citi, said uncertainty over potential tax rises likely discouraged consumer spending, while companies delayed their investment decisions due to a lack of clarity about which sectors would be affected.
According to the ONS, companies across a wide range of sectors reported holding back activity while they awaited the outcome of the Budget, including manufacturers, construction firms, wholesalers, technology companies, property firms and employment agencies.
The weak numbers prompted some forecasters to revise their outlook for the final quarter of the year. Analysts at Deutsche Bank cut their fourth-quarter growth forecast to 0.1 percent, citing ongoing budget uncertainty and subdued business investment.
Business groups including the CBI and the British Chambers of Commerce have warned that the budget is unlikely to deliver a sustained boost to growth over the next two years, despite the government planning to increase spending in the short term, funded by tax rises later in Parliament.
The Treasury said the government remains committed to boosting growth, creating jobs and investing in public services. Schools Minister Georgia Gould said there were “green shoots” following the resumption of car production, although economists warned the underlying environment remained weak.
The figures come ahead of the Bank of England’s final interest rate decision for the year next week. With GDP shrinking and signs of a labor market slowdown, investors are increasingly expecting the Monetary Policy Committee to consider a rate cut from the current 4 percent rate.
