The British economy contracted by 0.1% in October in a second consecutive monthly fall that shocked the City.
Latest figures from the Office for National Statistics (ONS) show that GDP unexpectedly dipped, dragged down by a big fall in manufacturing output. GDP fell by the same amount in September.
Rachel Reeves described the fall as “disappointing” but said Labour was determined to return the British economy to strong growth.
However, the data dismayed the City with one commentator saying the economy was stuck in the “bleak midwinter.” Markets had been expecting growth of 0.1% to 0.2%
The October dip means that GDP is now 0.1% lower than when Labour came to power in early July when Keir Starmer pledged to make a return to growth his top priority.
But GDP has now advanced in only one month, August, out of the last five, raising the spectre of a fall in output over the fourth quarter and even another possible shallow recession over the winter, though that is still seen as unlikely.
However, a cut in interest rates from the Bank of England next week to kick start flagging economic activity will now be seen as increasingly plausible.
The flatlining economy will be a huge worry for Labour strategists. There have been complaints from the business sector that Chancellor Rachel Reeves dampened consumer confidence in the run up to the October 30 Budget when she repeatedly warned of a “black hole” in the national finances left by the Tories.
The latest ONS data shows the dominant services sector did not grow at all in October, repeating the performance of September.
Production output fell by a chunky 0.6% in October 2024, largely because of falls in manufacturing, and mining and quarrying output, following a drop of 0.5% in September 2024; production output fell by 0.3% in the three months to October 2024.
Construction output fell by 0.4% in October , following a growth of 0.1% in September 2024, but advanced by 0.4% in the three months to October 2024.
Rachel Reeves said: “We are determined to deliver economic growth as higher growth means increased living standards for everyone, everywhere. This is what our Plan for Change is all about.
"While the figures this month are disappointing, we have put in place policies to deliver long term economic growth.
“We have put public finances back on a stable footing, capped the rate of corporation tax at the lowest level in the G7, established a £70 billion National Wealth Fund to drive growth in our towns and cities, launched a 10 year infrastructure strategy and are creating pension mega funds to boost investment in British businesses, infrastructure and clean energy."
Lindsay James, investment strategist from fund managers Quilter Investors: said: “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.
“Following a 0.1% contraction in September, October saw a similarly difficult month with a further 0.1% fall in monthly real GDP putting the UK on the cusp of a recession. The UK economy had been building relatively good momentum in the earlier part of this year, but concerns around the messaging in the lead up to the Budget saw consumers hit pause on spending while they awaited more details on the government’s plans.”
Douglas Grant, CEO of Manx Financial Group, said: “Latest UK GDP figures show that the broader economic outlook remains subdued and challenging, particularly for SMEs. Persistent cost pressures, driven by high input prices and compounded by geopolitical factors such as trade tariffs and fiscal measures, are likely to sustain higher interest rates, squeezing margins and curbing growth potential.
“This environment heightens pressure on businesses, amplifying investment hesitancy and emphasising the need for adaptable lending strategies to withstand ongoing uncertainty.”
