UK financial system shrinks for the second month in October

The UK financial system shrank for the second month in a row in October as considerations in regards to the Finances continued to weigh on confidence.

Official figures confirmed a 0.1% drop, regardless of expectations that the financial system would return to development after a fall in September.

The Workplace for Nationwide Statistics (ONS) mentioned that exercise had stalled or declined with pubs, eating places and retail amongst sectors reporting “weak months”.

Chancellor Rachel Reeves mentioned the determine was “disappointing”, however added: “We’ve put in place insurance policies to ship long-term financial development.”

Shadow chancellor Mel Stride mentioned: “This fall in development exhibits the stark impression of the chancellor’s choices and regularly speaking down the financial system.”

KPMG’s chief economist Yael Selfin mentioned that exercise was “held again by uncertainty forward of the Finances on 30 October” as companies and customers held again on spending.

However some industries, equivalent to actual property, regulation corporations and accountancy, introduced ahead work earlier than Reeves introduced the Finances, the ONS mentioned.

Individually, a survey measuring shopper confidence in December discovered folks had been a bit of extra optimistic about their private funds for the yr forward.

However the findings from market analysis agency GfK discovered that “views on the financial system are unchanged from November which suggests folks do not know the place we’re going”.

“In a nutshell, it is the persevering with uncharitable view on the UK’s common financial scenario that is suppressing shopper confidence,” mentioned Neil Bellamy, shopper insights director at NIQ GfK.

Shortly after turning into prime minister in July, Sir Keir Starmer warned that the Finances can be “painful” following 14 years of Tory authorities.

He later denied that he was speaking down the financial system.

The financial system has grown simply as soon as over the previous 5 months, ONS figures present.

Capital Economics mentioned GDP was 0.1% decrease than earlier than Labour gained the election in July.

“That implies it is not simply the Finances that’s holding the financial system again,” mentioned Capital’s chief UK economist Paul Dales.

“As an alternative, the drag from increased rates of interest could also be lasting longer than we thought.”

The Financial institution of England has lower rates of interest twice this yr however, at 4.75%, they’re nonetheless comparatively excessive in contrast with latest years.

The Financial institution will meet subsequent week for the final rate of interest determination of 2024, although it isn’t extensively anticipated to scale back borrowing prices once more till subsequent yr.

Economists cautioned about putting an excessive amount of emphasis on the studying for October. It’s an preliminary estimate of financial development by the ONS and may very well be revised.

Over the three months to October, the financial system expanded by 0.1%.

The manufacturing business recorded the sharpest drop in exercise in October, down 0.6%, adopted by development which fell by 0.4%.

In the meantime, the providers sector, which makes up the majority of the UK financial system, stalled with zero development.

Rick Gaglio, proprietor of menswear store Twisted Cloth in Hitchin, Hertfordshire, mentioned “individuals are nonetheless being cautious”, and added that costs are nonetheless comparatively excessive.

“That is simply all the way down to inflation and clients are feeling these value will increase,” he mentioned.

Mr Gaglio additionally mentioned that retail gross sales had been gradual throughout the summer time months attributable to wetter than normal climate.

“It has been powerful,” he mentioned. “2024 typically for small companies has been very, very powerful and we simply wish to hear extra excellent news, not unhealthy information.”

Sir Keir has mentioned he needs the UK to safe the very best sustained financial development of the G7 group of wealthy nations.

Final week, he set out extra “milestones” to permit folks to measure the federal government’s progress. On the financial system, he has pledged to extend actual family disposable earnings per individual.

He additionally reiterated a promise to construct 1.5 million houses in England.