- UK economy contracts unexpectedly
- Weather impacts major sectors
- Concerns persist despite measures
As per the ONS, poor weather contributed to the decline in output, affecting all three major economic sectors.
An initial official estimate of a 0.3% contraction for the United Kingdom’s economy in October resulted in an unexpected downturn.
According to the Office for National Statistics (ONS), output was negative in all three major sectors: services, manufacturing, and construction.
Economists had anticipated stagnant performance following the 0.2% growth observed in September.
The economic performance during the year’s third quarter could have been improved, resulting in zero growth. This alleviated concerns about the likelihood of a recession, which occurs when a nation experiences two consecutive quarters of contraction.
Despite this, the most recent data reinforces forecasts of a predominantly stagnant future performance, notwithstanding the chancellor’s announcement of a series of development measures in his autumn statement last month.
Regarding the ONS data, Jeremy Hunt stated, “GDP (gross domestic product) will inevitably be weak as long as interest rates continue to function to contain inflation.
Since December 2021, the Bank of England implemented measures to curb inflation, aiming to stimulate economic demand and decelerate the rate of price growth.
Although there has been a significant deceleration in inflation from its peak of 11% approximately one year ago, prices continue to increase more consistently.
The cost of borrowing has increased due to the Bank’s interest rate hikes; increasing mortgage and rent payments have emerged as a central component of the cost of living crisis.
Economic Challenges Persist Despite Mixed Indicators
The Bank warned earlier this month that five million households had yet to experience the impact of the home loan penalty because Bankir’s fixed terms had not expired.
A record rate of wage growth has, to some degree, bolstered the purchasing power of households, but data released on Tuesday revealed that the value of awards has plummeted.
Despite this, consumers continued to experience the highest real wage growth in two years (inflation included) due to the significant decline in the inflation rate in October.
In light of sufficient progress in reducing inflation, the Bank’s monetary policy committee has maintained the Bank rate at 5.25% for the second consecutive meeting.
Economists and financial markets anticipate an additional postponement for the scheduled rate decision announcement on Thursday.
Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), commented on the data released on Wednesday: “Based on preliminary assessments, GDP growth over the previous three months was essentially stagnant.
“Although engineering, film production, and education led recovery efforts in the services sector following the summer strikes, these gains were counterbalanced by declines in the manufacturing and housebuilding industries.”
“However, contractions occurred in all three major sectors in October.” The most significant services sector contributed to the decline, followed by IT, legal firms, and film production, all declining after a couple of solid months.
In addition, pervasive declines in manufacturing and construction, exacerbated in part by the inclement weather, contributed to these problems.
According to shadow chancellor Rachel Reeves, Rishi Sunak still needs to fulfill his commitment to stimulate economic growth by the end of the year.
She stated that worker welfare is deteriorating as economic growth regresses.
