Newest official GDP figures present the UK financial system has stopped increasing since Labour took energy, making a headache for Keir Starmer after placing progress on the centre of his authorities’s mission.
The financial system unexpectedly shrank by 0.1 per cent in October, in accordance with new knowledge from the Workplace for Nationwide Statistics. It missed economists’ expectations of 0.1 per cent progress, inflicting the pound to slide in opposition to the greenback.
A pointy fall in manufacturing output helped drive the contraction, in addition to uncertainty hitting the companies sector forward of the Finances.
“There’s a threat that the UK is slipping again into stagflation territory,” stated Thomas Pugh, an economist at consultancy RSM.
“Nonetheless, it’s seemingly that at the very least a number of the weak spot in October was pushed by a pre-Finances ‘wait and see’ angle by customers and companies and we nonetheless count on the financial system to reaccelerate into 2025.”
It marks the primary consecutive two months of contraction for the reason that onset of the Covid-19 pandemic, with GDP additionally falling 0.1 per cent in September.
The UK financial system outpaced all of its G7 rivals with 1.2 per cent progress within the first half of this yr, but it surely has stopped increasing since Starmer gained the overall election on a pledge to spice up progress.
“Development was highlighted throughout the election marketing campaign as being the prize, the magic that makes us all wealthier,” stated Danni Hewson, head of monetary evaluation at AJ Bell. “However the system for that magic has proved elusive.”
GDP has contracted 0.1 per cent since Starmer took workplace. It stagnated in July and rose 0.2 per cent in August.
Chancellor Rachel Reeves stated: “The numbers on in the present day’s GDP are disappointing, but it surely’s not attainable to show round greater than a decade of poor financial progress and stagnant residing requirements in just some months.”
The efficiency provides to a tough scenario for Labour as economists make gloomy forecasts on the fallout of its maiden Finances, which raised taxes by £41bn per yr.
Companies have warned increased labour prices from the tax measures will drive them to boost costs and reduce jobs. A closely-watched survey revealed on Friday prompt client confidence remained suppressed in December.
Financial institution of England policymakers are anticipated to make slower cuts to rates of interest within the months forward than different Western central banks as the roles market cools and vitality prices rise.
Throughout the pond, Donald Trump’s return to the White Home dangers Britain changing into embroiled in a commerce battle because the president-elect has dedicated to tariffs on EU and UK imports of 20 per cent.
“There may be each likelihood that the financial system went backwards within the fourth quarter as an entire,” stated Paul Dales, chief UK economist Capital Economics. “It’s unlikely that GDP will match the Financial institution of England’s 0.3 per cent fourth quarter forecast.”
Sanjay Raja, chief UK economist at Deutsche Financial institution, added: “The chance of a quarterly contraction is now not negligible. Home uncertainties arising from the Finances have nonetheless but to clear and exterior headwinds by way of the spectre of commerce battle provides to enterprise uncertainty going into 2025.”
