The UK economy recorded an unexpected contraction in October, according to official data, as business and consumer activity slowed in the run-up to the government’s budget announcement.
Gross domestic product (GDP) declined by 0.1% for the month, following a similar drop in September. This result defied market forecasts, which had anticipated a slight increase. The data indicates the economy failed to regain momentum, partly due to ongoing challenges in the automotive sector following a major cyber-attack on a leading manufacturer.
The dominant services sector, which accounts for the bulk of UK economic output, saw a 0.3% decline. Weakness was noted across retail spending and professional services. Construction output also fell, while the production sector posted a modest rise that was weaker than analysts had hoped for.
The Office for National Statistics reported that businesses across services, production, and construction cited uncertainty surrounding the pending budget as a factor leading to delayed decisions by both themselves and their customers.
This latest snapshot, marking a fourth consecutive month without growth, has solidified expectations that the Bank of England will cut interest rates at its upcoming policy meeting. Analysts point to fading inflationary pressures and concerns over the economic outlook as key reasons for anticipated monetary easing.
“The economy has lost more momentum than anticipated,” said one senior economist. “This should allow inflation to fall more quickly, giving the central bank room to act.”
The broader three-month picture to the end of October also showed a 0.1% contraction, underperforming against expectations of stagnation. While manufacturing showed some recovery from the severe disruption caused by the cyber-attack, the rebound was described as only partial, with output in the affected industry still significantly below pre-attack levels.
“The path to the new year looks challenging,” commented a chief UK economist. “Budget-related uncertainty, combined with softer hiring intentions, is likely to result in subdued spending and investment to close out the year.”
The data underscores the fragile state of economic growth as the year draws to a close, with all eyes now on the central bank’s next decision and the government’s fiscal plans.
