The UK economy shrank for the second consecutive month in October, the first two consecutive months of decline in output since the outbreak of the COVID-19 pandemic, before the first budget of the new British government. The Office for National Statistics (ONS) said that the UK's gross domestic product (GDP) fell by 0.1% month-on-month in October, the same drop in September.

This is the first consecutive monthly decline in GDP since March and April 2020, when the UK implemented its first lockdown due to the COVID-19 pandemic, although monthly GDP data is volatile and prone to revisions.

Economists polled by Reuters had forecast a monthly increase of 0.1% in October.

The services sector stagnated, while output in manufacturing and construction fell in October.

Friday's data added to a string of weaker-than-expected numbers for the UK economy, with business surveys and retail sales also lackluster.

"While the data released this month are disappointing, we have policies in place to deliver long-term economic growth," Chancellor of the Exchequer Rachel Reeves said in a statement.

Her budget statement on October 30 included a large tax hike on businesses, but also increased investment and spending on public services. The impact of these measures will start to show in GDP data in November.

A statistician at the Office for National Statistics said anecdotal evidence about the impact of the budget was "mixed", with some companies saying turnover had been affected by clients awaiting Reeves' announcement, while others had brought forward activity.

Sterling fell about 0.30% against the dollar as investors continue to expect the Bank of England to cut interest rates by about three quarter-points each by the end of next year.

Paul Dales, chief UK economist at Capital Economics, said the Bank of England is unlikely to cut interest rates when it meets next Thursday.

He added: “Having said that, our confidence in this is not as strong as it was before these data were released.”

Separately, trade data released by the UK Office for National Statistics showed that both UK imports and exports fell in October. For the first time in nearly a year, exports to the EU were higher than to the rest of the world.

"A weaker export environment, coupled with the impact of recently announced budget measures, raises concerns about maintaining growth momentum amid rising global policy uncertainty and falling business confidence," said Hailey Low, associate economist at NIESR.

Last month, the BoE cut its annual growth forecast for 2024 to 1% from 1.25%, but predicted stronger expansion of 1.5% in 2025, reflecting the short-term boost to the economy from Reeves' big spending budget plans.

Britain’s economic output has grown slowly since the pandemic began. Among major advanced economies, only Germany, which has also been hit hard by soaring energy costs following the conflict between Russia and Ukraine, has performed significantly worse.

Article forwarded from: Jinshi Data