"Despite the downbeat assessment, a rate cut by the Bank of England seems unlikely this month as policymakers remain cautious about the inflationary impulse from the Budget"
- Debapratim De, director of economic research at Deloitte
UK GDP declined by 0.1% month-on-month in October for the second consecutive time and below expectations of 0.1% growth.
This follows a fall of 0.1% in September and growth of 0.2% in August.
The latest fall was largely because of a decline in production output of 0.6%, following a drop of 0.5% in September.
Despite contracting GDP, many industry experts predict that the Bank of England will still hold interest rates at its meeting next week.
Hetal Mehta, head of economic research at St. James’s Place, commented: "Today’s GDP data will be disappointing for the government especially as the decline follows a contraction in September. However monthly data are noisy and some slowdown from strong growth earlier in the year was to be expected. With credit conditions loosening, interest rates moving lower and increased government spending on its way, the UK economy should experience modest growth next year. The positive signals from the housing market are a good cross-check for the economy and shows some resilience."
Debapratim De, director of economic research at Deloitte, said: “Today’s GDP data release suggests that UK growth had weakened significantly before the autumn budget. Waning business and consumer confidence seem to have affected output, after what was a surprisingly strong start to the year.
“Growth is expected to remain sluggish over the winter months, before the budgetary boost to public spending shows up in the GDP figures. Despite the downbeat assessment, a rate cut by the Bank of England seems unlikely this month as policymakers remain cautious about the inflationary impulse from the Budget and the wider geopolitical environment."
Luke Bartholomew, deputy chief economist at abrdn, agreed: “This is another disappointing GDP report, which will increase concerns that the economy lost steam in the run-up to the Budget. Monthly GDP data are very volatile, so it is important not to put too much weight on any one report. But this slowing is consistent with other economic data, all of which point to the economy having slowed considerably over the second half of the year. Nonetheless, the Bank of England is still likely to keep interest rates on hold next week, continuing with its “gradual” mantra about rate reductions. However, it is certainly possibly that the pace of rate cuts speeds up next year if the economy continues to slow and the labour market deteriorates more rapidly.”
Lindsay James, investment strategist from Quilter Investors, added: “This morning’s GDP figure presents the final snapshot of the UK economy before the Bank of England makes its last interest rate decision of 2024, and the picture is not all that pretty.
“While we could see an uptick in the coming months after the less bad than feared budget, there are other risks to the UK economy which could further dampen progress. Businesses will soon feel the effects of increased national insurance contributions, which in many cases will subsequently impact their employees as the costs are passed on. Wage growth could take a hit as a result, and this could see a lull in spending.
“It is looking increasingly likely that the Bank of England could stand alone in its decision at the December meeting to hold interest rates at their current level while the other central banks opt for cuts. The outlook for inflation in the UK remains uncertain, however with growth still weak whilst signs emerge that wage inflation will be meaningfully lower in the year ahead, the Bank may make a return to cuts in the new year.”
However, Isaac Stell, Investment Manager at Wealth Club, said the Bank of England could make a surprise rate cut next week, bringing some "much-needed festive cheer. He said: “These latest figures will send a chill through the corridors of Westminster, as the Government’s growth agenda looks increasingly at risk and almost certainly opens the door to the possibility of one final rate cut before the year is out.
"This latest reading further compounds the negativity surrounding the government’s latest Budget following the increase in taxes on businesses which will potentially slow growth even further. With more and more companies stating they will cut back on hiring and investment to deal with the rising costs related to the Budget, the question will be, where will Growth actually come from? However, given this latest decline, there is a real possibility that the BoE could cut rates at their December meeting, helping to deliver some much-needed festive cheer to the UK PLC and consumers alike.”
