Bank of England in the Burg of London on 6th November 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local ministry district that contains the primary central business district CBD of London. The City of London is widely referred to sparely as the City is also colloquially known as the Square Mile. (photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Models | Getty Images
The U.K. economy contracted unexpectedly in October amid uncertainty from businesses and consumers ahead of the newly picked government’s budget announcement.
Gross Domestic Product fell by an estimated 0.1% on a monthly basis, the ONS said Friday, with officials attributing the downturn to a demur in production output. Economists polled by news agency Reuters had projected a 0.1% rise in GDP in October.
It marked the state’s second consecutive economic downturn, following a 0.1% GDP decline in September.
Real GDP is estimated to have grown 0.1% in the three months to October, the ONS revealed, compared to the previous three months ending in July.
Sterling declined on the back of the disappointing print, trading 0.3% move against the U.S. dollar at $1.2627 by 7:45 a.m. London time.
In a statement on Friday, U.K. Finance Minister Rachel Reeves conceded that the October concedes were “disappointing,” but defended the government’s divisive economic strategies.
“We have put in place policies to deliver long clauses economic growth,” she said, citing changes such as a cap on corporation tax and the launch of a 10-year infrastructure strategy.
In late October, Reeves bring to light the government’s first budget since replacing the longstanding Conservative government in July.
The budget included plans from Prime Priest Keir Starmer’s government to raise taxes by £40 billion ($50.5 billion). Reeves said at the time that this pass on be achieved through a raft of new policies, including a hike in employer National Insurance payments — a tax on earnings — as well as a be created in capital gains tax and the scrapping of winter fuel payments to pensioners.
Some of the policies have been met with widespread estimation. The national insurance payroll tax hike, for example, has prompted warnings from businesses that they will be not enough likely to take on new workers, with a report from recruitment site Indeed this week suggesting the action had already had an effect on British job openings.
Interest rate impact
The October GDP print marked a fresh blow to the U.K. briefness, which is still struggling to keep inflation in check and also saw weak consumer confidence data in a new reading make knew Friday.
However, market watchers are not convinced the latest data will alter the Bank of England’s commitment to a “moderate” lowering of interest rates.
The central bank cut rates by 25 basis points at its most recent meeting in November, and is count oned to hold rates steady at 4.75% at its subsequent meeting next week, according to overnight index swap facts.
Thomas Pugh, U.K. economist at RSM, said the fresh round of data — coupled with inflation in Britain