Euronews Business takes a look at why the UK economy took a surprise tumble in October as the latest Office for National Statistics (ONS) figures are released.
ADVERTISEMENTThe UK economy contracted in October as output in all three main sectors - services, manufacturing and construction - declined.
ONS data released on Wednesday showed a contraction of 0.3% compared to 0.2% growth in September. Analysts had expected a flat result.
"Storm Babet was held up as part of the reason for a decline of 0.3% for the economy in October, hitting tourism and retail in particular. The decline compared to a marginal gain the previous month and inevitably begs the question of whether the interest rate hikes hitherto are now having the desired effect of strangling demand," Richard Hunter, head of markets at Interactive Investor, said.
The Bank of England’s next rate decision on Thursday should clear up some of the uncertainty, Hunter also noted, notwithstanding that today’s GDP release is another example of driving in the rear-view mirror as opposed to giving real-time direction.
"The news was well received in terms of the possibility of rate easing now being on the cards, despite the increased concerns of possible recession, with the domestically focused FTSE250 continuing its recent recovery, although the index remains down by 0.7% so far this year," he added.
Meanwhile, UK Chancellor of the Exchequer, Jeremy Hunt, said of the ONS figures: "It is inevitable GDP (gross domestic product) will be subdued whilst interest rates are doing their job to bring down inflation."
The Bank of England will be taking note of the latest economic data ahead of its latest interest rate decision. It is widely expected that the central bank will keep its interest rates on hold.
Return of recession fears as UK economy shrinks
Today’s figures point to a growing risk of a shallow recession in the UK ahead.
Danni Hewson, head of financial analysis at AJ Bell, said that no one expects the Bank of England to do anything other than hold firm on rates as it continues the fight to bring inflation back down to the elusive 2% target.
"But the economy is weakened, treading water until such a time as those rate hikes can start to be unravelled," he added.
“Why build houses if people will struggle to afford mortgages? Why open seven days a week if you can only fill your restaurant at weekends? Why invest in a new production line if you won’t get enough customers to buy your product – at least at the price you want to sell it at?
“Some of the factors responsible for the dismal economic performance in October won’t be repeated. Screen writers and actors have ended their walkout, which means action can resume on sets that had been dark. Consultants have reached a deal with the government, which could mean an end to at least some of the disruption that’s crippled the NHS. And people are finally getting to a checkout and finding their weekly shop has only gone up by a few pennies, rather than the pounds they’ve come to expect.
“But even if the UK does continue to dodge recession, real growth is likely to prove elusive for at least the next year,” Hewson also highlighted.
