Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK facing ‘tough road’ as recession looms despite economy growing in October – as it happened

United Kingdom GDP Economy Electricity
The City of London in London.
The City of London in London. Photograph: Tolga Akmen/EPA

Afternoon summary

Time to wrap up, after a day dominated by warnings that the UK economy faces a challenging time ahead, despite returnng to growth in October.

Here’s our main stories on the economy:

The energy crunch:

And also:

Reminder, our Politics Live blog has rolling coverage of the latest strike developments, including that Steve Barclay, the health secretary, is due to hold a meeting with the Royal College of Nursing later today:

Strikes to go ahead as RMT members reject latest Network Rail pay offer

Strike news: Members of the RMT at Network Rail have rejected the latest pay offer.

The union says members voted overwhelmingly to reject the latest offer from company bosses, with 63.6% voted to reject the Network Rail offer on an 83% turnout.

It means that two 48-hour strikes this week (on 13th-14th December, and 16th-17th December) will proceed, as will strike action from 6pm Christmas Eve until 6am on December 27 and into the new year.

RMT general secretary Mick Lynch said:

“This is a huge rejection of Network Rail’s substandard offer and shows that our members are determined to take further strike action in pursuit of a negotiated settlement.

“The government is refusing to lift a finger to prevent these strikes and it is clear they want to make effective strike action illegal in Britain.

“We will resist that and our members, along with the entire trade union movement will continue their campaign for a square deal for workers, decent pay increases and good working conditions.”

Updated

The number of jobs being created in the renewable energy industry is growing four times faster than the overall UK employment market, it has emerged.

New data shows that 2.2% of all new UK jobs have been classified as “green”, although concerns are rising over London’s dominance in the sector.

The number of green jobs advertised has almost trebled in the last year, equating to 336,000 roles, according to the second edition of consultancy PwC’s annual Green Jobs Barometer.

Back in London, shares in Home REIT – a property company which invests in sheltered housing for homeless people throughout the UK – have hit a record low, despite the company again rejecting allegations from a short-seller.

Home REIT’s board reiterated that it believes that all allegations made by Viceroy Research are without substance.

It told the City this morning:

Following its internal investigations, the Board reaffirms that the Company’s portfolio fulfils its sole focus of providing safe and secure accommodation to some of the most vulnerable in society, whilst generating shareholder value.

But it added that its auditor is carrying out “enhanced audit procedures”, including a detailed review of the material allegations made against the Company and its advisers.

Last month Viceroy raised questions about a range of issues, including the valuation of Home REIT’s properties, and claimed that several of its largest tenants “do not appear to be paying any rent” (details here).

Shares in Home REIT have dropped 11% to 41p, compared with almsot 80p before Viceroy released its report last month.

Updated

Russian President Vladimir Putin has canceled his annual end-of-year press conference for the first time in 10 years, the Kremlin announced today.

Kremlin spokesperson Dmitry Peskov told reporters.

“As for the big press conference, yes, it won’t happen before the New Year,”

Peskov added that:

“But we hope that the president will still find an opportunity to talk with [journalists], as he regularly does, including during foreign [visits].”

Kremlin-watchers view as a break with protocol due to Putin’s war in Ukraine, as my colleague Andrew Roth reports here.

Stocks have opened a little higher in New York, with the Dow Jones industrial average gaining 127 points or 0.4% to 33,604 points.

Boeing (+1.9%) and Microsoft (+1.6%) are leading the risers on the Dow, with Intel (-0.95%) and Walt Disney (-0.6%) lagging.

Record numbers of young adults living at home with their parents are helping drive the boom for luxury goods in the US and UK, according to Morgan Stanley.

Bloomberg has the details:

Recent US Census data shows that nearly half of all young adults ages 18 to 29 are living with their parents — the highest level since 1940.

Analysts led by Edouard Aubin at Morgan Stanley said the trend benefits discretionary spending and is partly responsible for the surge in popularity of handbags, watches and jewelery.

“When young adults free up their budget for daily necessities (e.g. rent and grocery), they simply have more disposable income to be allocated to discretionary spending,” the Morgan Stanley report said.

Royal Mail competitor DPD has blamed postal worker strikes for disrupting its services as demand for alternatives has shot up, ITV’s Joel Hills reports:

Evri, formerly Hermes, said on its website that “high parcel volumes, Royal Mail strikes and staff shortages” are causing delays to its services.

GSK announces new global headquarters in central London

Pharmaceuticals firm GSK has announced it will build a new headquarters in central London.

The company will move to the new headquarters in 2024, on the corner of New Oxford Street and Earnshaw Street, from its current location in Brentford, West London.

GSK says the site, called The Earnshaw:

…offers close proximity to the UK capital’s fast-growing global Life Sciences hub, London’s Knowledge Quarter, and GSK’s existing collaboration partners including the Francis Crick Institute and King’s College London.

Downing Street has rejected RMT general secretary Mick Lynch’s call for a face-to-face meeting with Rishi Sunak, to help resolve the dispute over pay, jobs and conditions that is gripping the railways.

The Prime Minister’s official spokesman said:

“We are not seeking to impose Government over and above either the independent pay review process or ongoing discussions between employers and the unions.

“We won’t be changing the process.”

Our Politics Live blog has more details on the UK’s strikes:

The pound is shrugging off concerns about the UK economy, and is up 0.2% against the US dollar so far today at $1.228.

Sterling has managed quite a recovery this quarter, after hitting a record low at the end of September after the mini-budget.

The pound vs the US dollar this year
The pound-dollar exchange rate this year Photograph: Refinitiv

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

Cable rebounded almost 20% since the Liz Truss dip back in September, and could extend gains toward $1.30, not because the pound will do great thanks to a flourishing British economy, but because the US dollar is expected to depreciate in the coming months.

And as it is the case for the euro, the short-term direction for sterling-dollar is unclear, as the US dollar’s move into and posterior to to the Fed decision will determine the next short term direction in Cable.

[‘cable’ is City slang for the pound-dollar exchange rate, because the trade took place over a transatlantic cable between London and New York]

Great Britain’s electricity system operator has stood down two coal-fired power stations that were put on emergency standby to keep the lights on amid a spell of cold weather.

As flagged earlier, the two coal units in North Yorkshire, owned by Drax, were put on notice that they could be needed to boost the UK’s power network.

More here:

Businesses face an incredibly painful winter, warns James Watkins, head of policy and public impact at London Chamber of Commerce and Industry (LCCI):

“Businesses may be encouraged by a return to growth for October’s GDP figures; however, the reality is that the economy is set to worsen for London’s business community and the disruption in the run-up to Christmas will hit companies hard.

There’s no route out of this economic slump without productive engagement between government and the private sector, Watkins adds:

Ministers must be prepared to engage with the London business community to review what further support it can provide to London in areas such as skills, productivity growth, and innovation to help kick start the national economy and pave the way to sustained economic recovery.

Businesses should not be made to suffer the consequences of an economic crisis they did not cause. The resilience of some London businesses can only hold for so long, especially during what is proving to be an incredibly painful winter.”

2023 is expected to be an exceptionally tough year for the UK economy, warns Thomas Pugh, economist at audit and tax firm RSM UK.

He predicts the country is almost certainly already in a year-long recession, during which unemployment will rise by the end of next year.

Pugh says:

We expect a peak-to-trough fall in GDP of around 2.5%. That would be slightly smaller than the early 1990s recession and significantly less than the Global Financial Crisis.

We expect the unemployment rate to rise from the 3.6% it is now, to around 5% by the end of 2023, entailing job losses of about 200,000. Hospitality and retail sectors are likely to bear the greatest losses as consumers discretionary spending power shrinks.

The cost of living crisis could ease a little: Inflation is forecast to fall in comparison to 2022, but still average a (historically high) 7.5% over the whole year.

And interest rates will stay high, RSM UK predict, with the first cut not coming until 2024.

There are still ‘strong downside risks’ to UK growth in the last quarter of this year, warns Paula Bejarano Carbo, associate economist at the NIESR economic research institute.

NIESR predicts that UK GDP will remain flat in the fourth quarter of this year, Bejarano Carbo explains:

Despite survey data indicating that business confidence improved in November relative to the slump caused by the Truss government and its ‘mini-budget’, firms in all three sectors continue to have an overwhelmingly pessimistic outlook.

Elevated prices, interest rates and uncertainty, which continue to limit household and businesses spending, alongside supply-side issues like labour shortages and strike action, all bode poorly for UK economic performance in the fourth quarter of this year.

That said, we expect growth in the construction sector alongside the seasonal increase in consumption to result in GDP remaining flat in Q4.

NIESR's UK economic forecasts
NIESR's UK economic forecasts Photograph: NIESR

Analysis: UK recession looms despite one-month economic rebound

The economy is going to get worse before it gets better. That’s Jeremy Hunt’s assessment of the current state of the UK and few would quibble with the chancellor’s judgment.

If ever there was a case of one swallow not making a summer, then the October growth report from the Office for National Statistics was surely it, our economics editor Larry Elliott writes:

Certainly, the economy expanded by 0.5% on the month, but that was mainly because of a bounceback in activity from September’s 0.6% fall, when there was an extra bank holiday for the funeral of Queen Elizabeth II.

While bank holidays are good for some sectors of the economy – such as hospitality – overall the closure of offices, factories and building sites leads to lower gross domestic product.

Retailers had a better time of it in October, and there was a marked pickup in new car sales after a particularly weak September. Activity in the health sector also increased as the autumn vaccine booster drive continued.

A better guide to the underlying state of the economy is provided by the quarterly data, which showed GDP 0.3% lower in the three months to October compared with the three months ending in July.

This is hardly a surprise given the impact high inflation is having on household budgets and business costs. Weaker consumer spending and mothballed investment plans are the direct consequence of the sharpest annual price rises in four decades.

More here:

Today’s fairly strong GDP reading for October will probably encourage the Bank of England’s MPC to proceed with an increase in interest rates by 50 basis points this week, predicts professor Costas Milas of the University of Liverpool’s management school.

He tells us:

Although November surveys point to weakening GDP since then, two other economic/financial readings are much more positive. First, the UK financial stress index (which monitors the volatility of bond prices, stock prices and exchange rates) is retreating. In fact, its December reading is quite low.

Second, the UK’s policy uncertainty index has also gone down in December.

Given the historical importance of these two readings towards predicting UK growth, I expect the Bank’s MPC committee to proceed with another round of interest rate tightening this week and then follow the “wait and see” approach during the first quarter of 2023.

The CBI are urging Jeremy Hunt to do more to calm the ‘tough road’ ahead.

Alpesh Paleja, CBI lead economist, says:

“As we approach 2023, the Government has a choice to make between action and inaction. The Prime Minister and Chancellor must use levers of growth not only to stem the severity of an upcoming downturn, but also to address the persistent weakness in investment and productivity.

We cannot afford to have another decade where both are effectively stagnant.”

Industrial action could also weaken the UK economy this winter, warns Barret Kupelian, senior economist at PwC:

Removing shorter-term volatility shows UK GDP fell by 0.3% across all sectors of the economy, with the exception of construction, in the three months to October.

We expect this trend to continue, consistent with projections from the Bank of England and the Office for Budget Responsibility. This means that output is likely to revert to below pre-pandemic levels in the near future.

“Working days lost to industrial action could also potentially contribute to an additional slowdown in the future although the impact is not clear as new trends like working from home and changing consumer behaviours are likely to moderate some of the economic impact.

The ONS mentions anecdotal evidence from the accommodation, goods and logistic networks where an adverse impact was reported but also from the bus transport sector which have reported an increase in turnover.”

Economist Julian Jessop shows how the UK economy appears to have weakened in November, based on the latest surveys of purchasing managers at companies around the country.

Video: Jeremy Hunt warns of tough road

Here’s a video clip of chancellor Jeremy Hunt warning that “truthfully, it is likely to get worse before it gets better”, with the UK economy facing a tough road, as covered earlier.

Updated

Handelsbanken predicts shallow, protracted UK recession

Several factors will weigh down future UK growth prospects, warns Daniel Mahoney, UK economist at Handelsbanken:

Changes to fiscal support for energy costs in April 2023 will mean most households lose access to a total of £900 over the financial year 23/24, adding to consumer caution.

The UK has already observed weakness in household spending compared to other developed economies and this withdrawal of support will no doubt exacerbate this issue. Moreover, since the onset of the pandemic inactivity rates in the UK economy have grown faster than the G7 average, while bureaucratic burdens associated with Brexit have been affecting trade figures.

Mahoney also predicts that UK GDP will probably fall in November and December, leading to a negative growth figure for Q4. That would put the UK officially into recession.

He adds:

Indeed, we are also expecting quarterly growth to be negative across 2023, which would mean six consecutive quarters of negative growth. The upcoming recession is likely to be shallow, but protracted, perhaps similar in growth profile to the recession observed in the 1990s.

Stocks lower in London

Shares are lower in the City this morning, with the UK-focused FTSE 250 index shedding almost 1%.

The bleak warning from Chancellor Jeremy Hunt about ‘a tough road ahead’ for the UK economy “put a downer” on the domestic-focused FTSE 250 index, says Russ Mould, investment director at AJ Bell.

Retailers ASOS (-5.1%) and Marks & Spencer (-3.5%) are the top fallers on the FTSE 250 index (of medium-sized companies), along with Royal Mail’s parent company International Distribution Services (-4.8%).

Mould explains:

“Retailers and travel businesses were among the biggest fallers as investors fretted about how much their goods and services would be bought by the public over the coming months if times are going to get even bleaker.

“Royal Mail is struggling under the weight of repeat labour strikes and investors are increasingly getting tired of waiting for a resolution and are voting with their feet. The shares in its parent company International Distributions Services dived another 4.5%, meaning they are now down 61% year-to-date. The arrival of snow across parts of the UK will only add to the company’s problems as deliveries might be delayed.

The blue-chip FTSE 100 index is down 0.2%, due to weakness across the mining, retail and property sectors.

Updated

Darren Morgan, ONS director of economic statistics, says the UK economy “bounced back in October”, recovering from the impact of the additional bank holiday for the state funeral.

Morgan added:

“In particular, car sales rebounded after a very poor September, while the health sector also saw a strong month, with GP appointments, A&E attendance and the Covid-19 autumn booster campaign all driving up the sector.

“Construction continued its strong trend over the last year and stands at its highest level on record, with new housebuilding driving growth this month.

“However, over the last three months as a whole the economy shrank, with falls seen across services and manufacturing.”

Meanwhile in the City…Microsoft is taking a 4% stake in the London Stock Exchange Group as part of a 10-year commercial deal to migrate the exchange operator’s data platform into the cloud.

As part of the deal, LSEG has made a contractual commitment for minimum cloud-related spend with Microsoft of $2.8bn over the term of the partnership.

Microsoft said the basis of the partnership will be the digital transformation of LSEG’s technology infrastructure and Refinitiv platforms on to the Microsoft Cloud.

David Schwimmer, CEO of LSEG, said:

“This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers.

Microsoft is buying its stake from a Blackstone/Thomson Reuters consortium, which sold financial data company Refinitiv to LSEG in a £22bn takeover in 2019.

Shares in the LSEG have jumped 4%, to the top of the FTSE 100 leaderboard.

Victoria Scholar, head of investment at interactive investor says:

The tie-up will ‘meaningfully’ increase the stock exchange’s revenue growth over time. In return, LSEG has agreed to a minimum spend on Microsoft’s cloud services of $2.8 billion over the decade.

Investors in LSEG are cheering the stake build by the tech giant. It complements the LSE’s cloud-centric aspirations, which it has been working on delivery since the acquisition for $27 billion of financial data company Refinitiv in January 2021.

Shares in LSEG have outperformed over a one-year period rallying more than 10% to Friday’s close. The partnership with Microsoft has further boosted its stock price with investors enjoying a pick-up today.

S&P Global Market Intelligence: UK economy faltering

The UK recession is likely to deepen early next year, warns Raj Badiani, principal economist at S&P Global Market Intelligence:

Badiani says the 0.3% contraction in August-October shows the UK economy is faltering:

“The return to growth in October was expected and supports our assessment that the anticipated recession is likely to be shallow at first before deepening in early 2023.

Overall, the economy faltering in the three months to October suggests the recession appeared to start in the third quarter 2022, which is expected to last for four quarters.”

Bank of England likely to raise interest rates despite weak economy

The UK economic picture remains downbeat despite stronger growth in October than expected, says Melanie Baker, senior economist at Royal London Asset Management.

Baker points out that UK interest rates are likely to rise again on Thursday, when the Bank of England announces its monetary policy decision:

“The bounce in October GDP may have been a touch stronger than consensus expected after the extra bank holiday hit output in September, but taking September and October together paints a downbeat picture of UK economic growth going in to Q4. The level of GDP is barely above where it was pre-pandemic, part of the bounce in services output was down to vaccination and test and trace activity and more than half the manufacturing subsectors saw declines in output.

“The UK could escape a technical recession (for now) if November and December output was flat, but falling output would be more consistent with the picture being painted by business surveys.

“With inflation as strong as it is, and despite the downbeat picture for economic activity, another Bank of England rate hike is very likely on Thursday.”

The money markets are anticipating a 50 basis point hike, which would take Bank of England base rate up to 3.5%, from 3% currently. Rates are forecast to peak at 4.5% next summer.

UK house asking prices falling as rising interest rates bite

The UK property sector also appears to be cooling.

UK home-sellers cut their asking prices at the quickest pace in four years after the jump in interest rates deterred buyers, Rightmove reports this morning.

The UK’s biggest property website said the average asking price was £359,137 in early December – about £7,862 less than a month previously.

The fall in asking prices followed a 1.1% decrease in November’s prices, and will be seen as further evidence that the property market is rapidly cooling.

Here’s the full story:

Updated

The 0.5% increase in GDP in October means the UK economy is 0.4% above its pre-coronavirus levels, the ONS reports.

Hunt: UK economy set to get worse before recovery

Chancellor Jeremy Hunt has said the UK’s economy was “likely to get worse before it gets better” after this morning’s GDP report showed a bounce-back in growth in October, but a contraction over the last quarter.

Hunt also told broadcasters he did not know whether inflation had peaked or not (we get November’s inflation report on Wednesday).

He said:

“I think it’s a very challenging international picture. About a third of the world’s economies are predicted to be in recession, either this year or next.

“We’re no different in this country and truthfully, it is likely to get worse before it gets better, which makes it even more difficult when we have big public sector strikes going on at the moment.”

Updated

National Grid fires up two coal-fired plants amid UK icy weather

Great Britain’s electricity system operator has put two coal-fired power stations on emergency standby to keep the lights on, as the weather turns colder.

National Grid Electricity System Operator (ESO) said the two “winter contingency coal units” will be available if required on Monday as temperatures dip below zero and demand soars.

It said the public “should continue to use energy as normal”, my colleague Jasper Jolly explains.

The government this summer asked the owners of coal-fired power stations to slow closure plans as ministers looked to shore up energy supplies following the invasion of Ukraine by Russia. Russia was previously a big supplier of natural gas to Europe, so the invasion roiled global energy markets and prompted a scramble for alternatives.

The coal plants in North Yorkshire that are preparing to operate on Monday are owned by the energy company Drax. They will only operate if instructed to do so by National Grid, and Drax will not be able to sell the electricity on the open market.

It comes after temperatures dropped as low as -8.6C on Sunday in Marham, Norfolk, according to the Met Office. It had issued yellow weather warnings for snow or ice for large parts of the country on Monday morning, with snowfall causing travel disruption across south-east England, including London, and northern Scotland.

The drop in temperatures prompted UK power prices to hit a record high on Sunday.

Here’s the full story:

Updated

TUC: Government must take action to prevent recession

The government must step in to stop a damaging recession and job losses, the Trades Union Congress (TUC) says.

Following the news that quarterly GDP fell by 0.3% in the three months to October, TUC General Secretary Frances O’Grady says:

“With quarterly GDP falling, ministers should step in to stop a damaging recession and job losses.

“Britain needs a pay rise. Rishi Sunak should stop attacking working people defending their pay and sit down to negotiate fair pay rises with unions.”

Updated

EY Item Club, the economic forecasters, fear the economy could shrink in Q4. That would put the UK into a technical recession, as GDP shrank in Q3.

They say that the downturn is likely to continue in the first half of next year:

  1. October’s month-on-month increase in UK GDP was probably due to the comparison with September, when the extra bank holiday affected activity. The bigger picture is one of activity remaining sluggish on an underlying basis, and the EY ITEM Club expects that GDP is likely to be – at best – flat in Q4, with a good chance of seeing a second successive quarter-over-quarter fall.

  2. The downturn seems likely to deepen in the near-term, due to the continued squeeze on household spending, and with the impact of tighter monetary policy still to be realised and fiscal policy likely to be tightened substantially from April. The EY ITEM Club expects to see GDP fall further in H1 2023.

UK small firms face an ‘increasingly bleak’ outlook, warns Federation of Small Businesses (FSB) National Chair Martin McTague:

“Small businesses are struggling with energy bill hikes and the impact of strikes as we head into the festive period, and the outlook is increasingly bleak. With no or little cash reserves, and a weaker consumer economy to rely on, small firms are always more vulnerable to downturns.

“It’s important to note that while the October GDP figure is better than September’s, it is not a fair comparison. September’s figures reflected a period of suppressed economic activity after the sad death of HM The Queen. Conditions are still incredibly tough for many, and there is no room for complacency.

“The fact that consumer-facing services, such as hospitality and retail, are still 8.9% below their pre-coronavirus levels is striking, and spells out the scale of the difficulties facing small firms in those sectors.

UK GDP to October 2022
UK GDP to October 2022 Photograph: ONS

Small firms are facing a “cost of doing business crisis”, McTague adds, with inflation “eating away at margins, and sky-high energy prices making just keeping the lights on a fraught decision”.

Add in disruption from recent industrial action and a squeeze on access to finance, and the picture is very far from rosy, he adds.

NIESR, the economic thinktank, predicts the UK economy will stagnate in the fourth quarter of this year:

This winter is going to be incredibly difficult for many people, warns Marcus Brookes, chief investment officer at Quilter Investors:

Here’s his take on today’s UK GDP report:

“Following September’s fall in GDP, the UK’s economic output bounced back somewhat with a 0.5% gain in October, slightly more than expected. In isolation this should be celebrated, but looking at the wider context and the picture for the UK economy remains an unhealthy one as we head into the winter months. GDP fell by 0.3% in the three months to October compared with the three months to July, and given the Bank of England fears the country is already in a recession this is likely to be the picture going forward for some time.

“While inflation is expected to be at or around its peak now, it is proving to be very stubborn and is contributing to a prolonged cost of living crisis. With political factors continuing to play out, energy prices are not going to suddenly fall sharply, while we have also recently entered a fiscally restrained period from the government, with spending cuts accompanying large tax increases. This is going to be an incredibly difficult winter for many people, and with the weather no longer mild for the time of year, the economy could be frozen.

Full story: UK economy returns to growth as GDP rises 0.5% in October

Britain’s economy returned to growth in October despite concerns over a lengthy recession, as activity bounced back from the impact of the additional bank holiday for the state funeral of Queen Elizabeth II.

The Office for National Statistics said gross domestic product (GDP) rose by 0.5% on the month, after a decline of 0.6% in September when many businesses closed their doors during the national mourning period.

Car sales rebounded after a poor month amid a wider recovery in the country’s dominant service sector, while there was strong growth in activity in the health sector amid a rise in GP appointments, A&E attendance and the Covid-19 autumn booster campaign.

Construction continued a strong run, driven up by housebuilding, while manufacturing output grew.

However, GDP shrank by 0.3% in the three months to October, reflecting concerns over the strength of the economy as consumers and businesses tightened their belts amid the highest rates of inflation for 41 years.

More here:

IoD: Strong monthly economic data does not alter picture of a slowing economy

On the face of it, 0.5% growth in a month is pretty pacy.

But unfortunately, October’s expansion partly reflects the disruption from September’s state funeral.

Over the last three months, as Labour’s Rachel Reeves points out earlier, the economy contracted by 0.3%.

Kitty Ussher, chief economist at the Institute of Directors, warns that the UK economy is slowing:

“At a first glance, businesses worried about prospects for the UK economy can take heart from news that GDP growth was strongly positive in October, growing 0.5% compared to September even at a time when there was both financial and political instability. In particular, consumer-facing services like retail, travel and recreation all recorded strong growth on the month.

“However, the growth in October is mainly a rebound from the negative economic impact of the additional bank holiday for the state funeral in September. Because it was a one-off event, this bank holiday was not included in the usual seasonal adjustments of September’s data.

“Overall, today’s data does not alter the picture of a slowing economy. Taking a three-month view, the economy contracted by 0.3% from August to October. It is this longer-term trend that will have more impact on the [Bank of England’s] Monetary Policy Committee when it meets on Thursday to consider whether the time has come to slow the pace at which interest rates are rising.”

Updated

Experts: UK still heading into recession

City experts are warning that the UK is still heading into recession.

The 0.5% increase in GDP in October does not mean that the downturn has been averted.

Jeremy Batstone-Carr, European Strategist at investment bank Raymond James, says rising inflation and higher interest rates are hitting growth:

“This tentative rebound from sharply falling GDP in September may look like a positive step back toward growth, but we should not get over-excited. Half of September’s fall in GDP was due to the one-off bank holiday for the Queen’s funeral, so we were always likely to see a correction as the UK returns to regular working days. Today’s GDP figures flatter to deceive, concealing an otherwise-shrinking economy.

“The economy is no longer teetering on the edge of recession; it is fully in one. We are now feeling the pain of both relentless inflation and interest rate rises, which are both crippling business and household spending. The Bank of England’s Monetary Policy Committee is divided on how sharply to rise base rates, but it looks increasingly likely we will be living with another 0.5% increase by the end of this week.”

The rise in GDP in October is a ‘false dawn’, warns Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales).

Thiru points out that the Bank of England is likely to raise interest rates by another half a percentage point on Thursday, from 3% to 3.5%, which would dampen growth.

“October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was supressed by the Bank Holiday for the Queen’s funeral.

“The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup.

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

George Lagarias, chief economist at audit firm Mazars, also fears a ‘grim outlook’ for the UK economy:

“October GDP grew slightly more than expected, at 0.5%, mostly due to an improvement in retail sales. Today’s number does little to change the grim outlook for the UK economy.

Markets still expect a recession early next year. Demand is set to be weak, as high energy prices persist and winter has really just begun. Meanwhile, the jobs market is projected to remain tight for months, and thus inflation persistent, until new workers have been trained appropriately to reduce the mismatch between the skills required and those available.

Despite October’s growth, it would take a significant turnaround in policymaking and/or global conditions to change the downward British economic trajectory.”

Updated

Here’s Victoria Scholar, Head of Investment at interactive investor, on today’s GDP report:

“UK monthly real GDP grew by 0.5% in October, ahead of expectations for 0.4% and swinging from a decline of 0.6% in September which was negatively impacted by the extra bank holiday for the Queen’s funeral. Strength in October came from the services sector which grew by 0.6%, beating analysts’ forecasts thanks to car and motorbike repairs and human health activities.

With the cost-of-living crisis and a looming recession, fewer consumers are purchasing new vehicles, pushing up demand for repair services.

Meanwhile the autumn booster campaign strengthened demand for covid testing and vaccinations. Elsewhere, construction output grew by 0.8%, its fourth consecutive increase with the biggest contribution to demand coming from repair and maintenance.

Taking a step back, although GDP picked up in October, on a three-month basis, the UK economy has shrunk by 0.3% with falls in the manufacturing and services sectors.

Reeves: Labour will make economy stronger

Rachel Reeves MP, Labour’s Shadow Chancellor, is concerned that the UK economy shrank in the August-October period (despite growing in October alone).

She says:

“Today’s numbers underline the failure of this Tory government to grow our economy, leaving us lagging behind on the global stage.

“These are challenging economic times, but there is a choice. We can continue down the road of managed decline, falling behind our competitors, or we can draw on bold thinking to propel us forward.

“That is why Labour will make our economy stronger and get it growing, with our Green Prosperity Plan and an active partnership with business.”

Jeremy Hunt: There's a tough road ahead

Jeremy Hunt has warned that the UK still faces a ‘tough road’ ahead.

Responding to this morning’s GDP report, the chancellor says:

“High inflation, exacerbated by Putin’s illegal war, is slowing growth across the world, with the IMF predicting a third of the world economy will be in recession this year or next.

“While today’s figures show some growth, I want to be honest that there is a tough road ahead. Like the rest of Europe, we are not immune from the aftershocks of Covid-19, Putin’s war and high global gas prices.

“Our plan has restored economic stability and will help drive down inflation next year, but also lay the foundations for long-term growth through continued record investment in new infrastructure, science and innovation.”

This echoes Hunt’s warning a month ago, when we learned the UK economy had shrunk in July-September.

UK GDP report: Services sector and manufacturing grew

This morning’s GDP report shows that the UK’s services sector returned to growth in October:

The Office for National Statistics reports that the services sector grew by 0.6% in October 2022 and was the main driver of the growth in GDP.

The ONS says:

The services sector grew by 0.6% in October 2022, after falling by 0.8% in September 2022; the largest contribution to the growth came from wholesale and retail trade; repair of motor vehicles and motorcycles, which rose by 1.9% in the month.

But the production sector was flat, although manufacturing did grow, while construction output increased by 0.8%.

The ONS explains:

Manufacturing was the only sub-sector to grow, rising by 0.7% in the month. The main drivers were the manufacture of basic pharmaceutical products and pharmaceutical preparations (up 8.4%) and manufacture of transport equipment (up 2.3%).

The broader picture, though, is that the UK economy shrank by 0.3% in the three months to October, compared with the three months to July..

Updated

NEWSFLASH: UK economy grew 0.5% in October

Breaking: The UK economy returned to growth in October.

GDP is estimated to have grown by 0.5% in October 2022, the Office for National Statistics reports, following a fall of 0.6% in September 2022, which was affected by the additional bank holiday for the State Funeral of HM Queen Elizabeth II.

That’s slightly stronger than economists expected (the poll was for 0.4% growth).

Updated

UK power prices hit record high amid cold snap and lack of wind power

Also coming up today…

UK power prices have hit record levels as an icy cold snap and a fall in supplies of electricity generated by wind power have combined to push up wholesale costs.

The day-ahead price for power for delivery on Monday reached a record £675 a megawatt-hour on the Epex Spot SE exchange. The price for power at 5-6pm, typically around the time of peak power demand each day, passed an all-time high of £2,586 a megawatt-hour.

Prices are surging as the weather forces Britons to increase their heating use, pushing up demand for energy, despite high bills.

Snow and ice have caused disruption as the cold weather looks set to continue into this week, with snow forecast for parts of east and south-east England, as well as Scotland.

The cold snap, which is expected to last for at least a week, comes as wind speeds reduced sharply, hitting power suppliers.

Live data from the National Grid’s Electricity System Operator showed that wind power was providing just 3% of Great Britain’s electricity generation on Sunday. Gas-fired power stations provided 59%, while nuclear power and electricity imports both accounted for about 15%.

Here’s the full story:

Fears for UK economy after manufacturing sector shrinks by 4%

Fears are growing over the state of the UK economy as it emerged that the manufacturing sector shrank by about 4% this year and is forecast to decline by a further 3.2% in 2023.

Increasing raw material costs, sagging consumer demand, staff shortages and higher borrowing costs have collectively formed the perfect storm for the UK manufacturing sector, according to the latest Make UK/BDO outlook report.

The study showed that investment in the sector has gone “negative” for the first time in nearly two years.

The report suggests that the manufacturing sector is likely to be 7% smaller by the end of next year, although the report’s authors stressed that the 4% fall for this year is relative to a strong 2021, which experienced a pandemic bounceback.

Introduction: October's GDP report in focus

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

We’re about to learn how the UK economy fared at the start of the last quarter of the year.

October’s GDP report, due at 7am, is expected to show that the economy returned to growth during the month, after contracting in September.

GDP is forecast to have risen by 0.4% during October, after a 0.6% contraction in September when rising inflation hit households and businesses, and many firms closed for the extra bank holiday for the funeral of Queen Elizabeth II.

But economists also fear the UK economy is sliding into recession, after contracting in the third quarter of 2022.

Sanjay Raja, chief UK economist at Deutsche Bank, fears the UK’s economic outlook is deteriorating.

He told clients last week:

After a September contraction (-0.6% m-o-m), driven largely by the Bank Holiday for the Queen’s funeral, we expect a modest bounce back in output. Our models point to a GDP print near 0.4% m-o-m. Survey data paint a bleaker picture, however. The ongoing cost of living crisis, elevated economic uncertainty, and rising cost pressures all point to a deteriorating outlook in the months ahead.

What to expect going forward? We see Q4-22 GDP shrinking — but just barely at -0.1% q-o-q, pushing the UK into a technical recession. How long do we expect the recession to last? We expect the recession to last four quarters, with GDP shrinking by around 1.5% peak-to-trough, leaving 2023 GDP growth at -0.9%.

The agenda

  • 7am GMT: UK GDP report for October

  • 7am GMT: UK trade report for October

  • 1pm GMT: Economic thinktank NIESR releases monthly UK GDP tracker for November

  • 3.15pm GMT: UK Treasury committee holds hearing with senior officials on work of the Treasury

Updated

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Keira Knightley Revisits "Trauma" of Being Accused of Having an Eating Disorder
"I'll suddenly have a very bodily memory of it because, ultimately, it's public shaming."
Marie Claire
Marie Claire
Keira Knightley recalls ‘public shaming’ she felt amid claims she had an eating disorder
‘It’s obviously part of my psyche, given how young I was,’ she recalls about the eating disorder claims
The Independent UK
The Independent UK
The Simpsons: Hit & Run dev says they could've made 3 sequels without paying a penny for the license: "Some crazy person at the publisher - we never found out who - said no"
"We never imagined it would still be bringing some people happiness 20 years later!"
GamesRadar
GamesRadar
Wrestler, film star – and future president? Why we should all take Dwayne ‘The Rock’ Johnson seriously
The WWE icon, already one of Hollywood’s highest-paid film stars, has shown himself to be ‘focus group-proof’
The Guardian - UK
The Guardian - UK
Eating this fruit before bed can help you sleep better – but expert opinions are divided
TikTok strikes again with its avocado sleep hack – but does it actually work?
T3
T3
Cher was ‘shocked’ to discover her legal name after birth certificate mix-up
Pop icon had gone for years without knowing what was written on her birth certificate
The Independent UK
The Independent UK
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play