Chancellor Jeremy Hunt has warned of a “tough road ahead” despite official figures showing Britain’s economy grew in October.
Economists described October’s 0.5 per cent growth as a “false dawn” with the economy slumping to negative growth of 0.3 per cent on a quartely basis, suggesting the UK is still on course to slide into recession by the end of the year.
Estimates for growth in October were also distorted by the Bank Holiday for Queen Elizabeth II’s state funeral in September when many businesses shut or reduced services.
“While today’s figures show some growth, I want to be honest that there is a tough road ahead,” Mr Hunt said in a statement. “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.”
The latest gloomy figures come as the Bank of England’s Monetary Policy Committee is set to raise interest rates - perhaps by 0.5 percentage points to 3.5 per cent - on Thursday, adding further pressure to squeezed household budgets.
The Chancellor is treading a fine line between trying to dampen rampant inflation - driven by surging food and fuel costs - and not choking off growth, which has stalled and is unlikely to recover until 2024.
GDP fell by 0.2 per cent in the third quarter of the year (June- September) and economists expect an even bigger decline in the final quarter of 2022 - meaning the UK will have entered a recession, defined as two consecutive quarters of negative growth.
Yaelâ¯Selfin, Chief Economist at KPMG UK said: “While overall UK GDP rose by 0.5 per cent in October, driven in part by the weaker September as a result of the additional bank holiday, we expect it to fall in the final two months of the year.“
Suren Thiru, Economics Director at the Institute of Chartered Accountants, said: “October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was suppressed 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.”
The Office for National Statistics said the improved performance in October was not only explained by the Queen’s funeral. They said that 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.
Darren Morgan, ONS director of economic statistics, added: “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.”
Rachel Reeves, Labour’s Shadow Chancellor, responding to GDP figures released today, said: “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.
