The U.K. economy unexpectedly remained in contraction in October, as uncertainty ahead of the Autumn budget presented by Chancellor Rachel Reeves weighed on growth and dampened business confidence.
Figures released on Friday by the Office for National Statistics showed that gross domestic product fell by 0.1% month on month in October. The decline matched September’s contraction and came in below economists’ expectations for a modest 0.1% expansion.
On an annual basis, the U.K. economy grew by 1.1% in October, unchanged from the previous month but weaker than the 1.4% growth forecast.
The manufacturing sector provided some support, expanding by 0.5% during the month after a sharp 1.7% fall in September. The rebound was helped by the restart of operations at Jaguar Land Rover facilities early in October following a cyber attack that had disrupted production.
Economists said uncertainty surrounding the Autumn budget, delivered by Rachel Reeves in November, likely discouraged both businesses and consumers from committing to new investment and spending decisions. While the chancellor ultimately raised taxes to create more headroom for deficit reduction and higher welfare spending, the increases were smaller than many had feared.
Following the budget, the Confederation of British Industry upgraded its economic outlook, pointing to a short-term boost from increased government spending. The CBI now expects the U.K. economy to grow by 1.3% next year, up from its previous 1.0% forecast in June. It also revised its growth estimate for this year to 1.4% from 1.2%, reflecting upward revisions to recent official data.
CBI chief economist Louise Hellem said that while the improved outlook was welcome, sentiment remained cautious rather than celebratory.
Attention now turns to the Bank of England, which will hold its final policy meeting of the year next week. The central bank is widely expected to cut interest rates by 25 basis points to 3.75%, as recent data point to easing inflation pressures.
British inflation fell to 3.6% in October from 3.8%, marking its first decline since May and aligning with the Bank of England’s projections. Data due next week could show further moderation. The central bank left rates unchanged at 4.0% in November, but the decision was closely split, with four of the nine policymakers voting in favour of a rate cut.
