UK economy shrank 0.3% in October in surprise decline

13 December 2023, 07:21 | Updated: 13 December 2023, 07:46

The UK economy shrank in October
The UK economy shrank in October. Picture: Alamy

By Kit Heren

The UK economy unexpectedly contracted by 0.3% in October, as interest rate hikes appeared to affect spending.

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Gross domestic product (GDP) shrank after growing 0.2% in September, according to an early official estimate by the Office for National Statistics (ONS). Economists had expected GDP to fall by just 0.1%.

All three of the main sectors that the ONS tracks - services, manufacturing and industry - contracted for the first time since July.

The Bank of England's successive interest rate increases have aimed to curb inflation by reducing spending.

Rapid wage growth may have acted as a balance on the rate increases, but pay rises have slowed recently, according to ONS data released on Tuesday.

Chancellor Jeremy Hunt said it was "inevitable" that rate hikes would affect the economy in the short-term.

Read more: Growth outlook for UK economy 'worst I've seen in my lifetime', Bank of England Governor declares

Read more: Pay rises at slowest rate for two years and job vacancies fall, in sign Bank of England will keep interest rates steady

ONS director of economic statistics Darren Morgan said: "Our initial estimates suggest that GDP growth was flat across the last three months. Increases in services, led by engineering, film production and education - which recovered from the impact of summer strikes - were offset by falls in both manufacturing and housebuilding.

"October, however, saw contractions across all three main sectors.

"Services were the biggest driver of the fall with drops in IT, legal firms and film production - which fell back after a couple of strong months.

"These were also compounded by widespread falls in manufacturing and construction, which fell partly due to the poor weather."

Chancellor of the Exchequer Jeremy Hunt said:  “It is inevitable GDP will be subdued whilst interest rates are doing their job to bring down inflation.

"But the big reductions in business taxation announced in the Autumn Statement mean the economy is now well placed to start growing again".

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