"Calls for rate cuts are likely to grow stronger should this sort of economic data persist."
- Lindsay James, investment strategist at Quilter Investors
Monthly GDP is estimated to have fallen by 0.3% in October, following growth of 0.2% in September.
The Office for National Statistics said services output fell by 0.2% in October 2023, driven by a fall in information and communication, and was the main contributor to the fall in growth in GDP.
Production output fell by 0.8% in October, driven by widespread declines in manufacturing, after showing no growth in September 2023, and the construction sector fell by 0.5% after growth of 0.4% in September.
Lindsay James, investment strategist at Quilter Investors, said: “UK GDP fell 0.3% month-over-month in October, down from 0.2% in September and missing estimates, piling the pressure on the Bank of England ahead of Thursday’s interest rate decision. While no rate cuts are expected tomorrow, or for some time, it will be crucial to see how the BoE is monitoring economic growth going forward and what that might mean for the path of interest rates. Calls for rate cuts are likely to grow stronger should this sort of economic data persist.
“Services in the UK has always been the strongest part of the economy, but this month it has driven the fall in GDP as a result of information and communication services struggling. If the UK is to avoid recession it is the services sector that is likely to prevent it, so seeing such a sharp fall on the month will be cause for concern.
“With GDP growth over the last rolling three month period also flat, economic conditions in the UK are clearly tough as we work through the winter months. The BoE will be hoping it can muddle through so its higher for longer narrative can persist, but how long this can continue remains to be seen. This may be a fairly backward looking data set, given it is for October, but it will remain a crucial one to watch as we enter 2024. The Bank of England has done a good job not tipping the UK into recession to date, but interest rates are biting now and further contraction cannot be ruled out. It could be a while before things get better again.”
Nicholas Hyett, investment analyst at Wealth Club, commented: “With the Bank of England expecting to leave interest rates unchanged on Thursday, this is shaping up to be a flatline festive period. GDP has gone nowhere over a three month period, as a bleak October offset some more positive numbers from the end of the summer.
"The question now is when the Bank starts cutting rates. Leave it too long and the cure could yet prove worse than the disease... who would want to be a central banker."
Speaking via PR platform Newspage, mortgage brokers said that the economy contracting by 0.3% in October could see the Bank of England cut rates sooner rather than later, which will benefit borrowers and potentially boost the property market.
According to Riz Malik, director at R3 Mortgages, said: "These numbers are weaker than expected but weak numbers are what we need for Threadneedle Street to cut rates sooner rather than later. Sad news for UK Plc but potentially good news for mortgage borrowers."
Stephen Perkins, managing director at Yellow Brick Mortgages, commented: “The latest GDP figures show a bleak mid-winter for the UK economy. They reflect the continued cost of living crisis eroding people's spending power and the current plight of many businesses. The only positive is that this should make a base rate hold decision from the Bank of England this month much more likely, meaning stability all the way through to the following review in February. The odds of a rate cut earlier in 2024 than originally expected have just shortened, which will boost sentiment in both the mortgage and property markets."
Craig Fish, director at Lodestone Mortgages & Protection, added: “Whilst bad news for the economy, and sad news for so many businesses, this could be the gift that mortgage holders in the UK have been waiting for. A slowdown in the economy means that there is potential for those who set the base rate to consider cutting it sooner rather than later. We will still likely see a hold on Thursday, but the first base rate cut could come as early as the end of the first quarter 2024.”
