UK economy unexpectedly shrunk before Budget
Pedestrians walk past British Union flag designs on advertisements.
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The U.K. economy unexpectedly contracted 0.1% in the three months to October, according to official figures released Friday.
Economists had expected 0% growth over the period. It follows a 0.1% expansion over the three months to September.
The Office for Statistics noted that services output stalled, construction output fell 0.3% and production output fell 0.5% “largely because of a fall in the manufacture of motor vehicles, trailers and semi-trailers in this period.”
The figures come after the U.K.’s Chancellor Rachel Reeves unveiled a range of tax hikes in her hotly anticipated Budget last month, as she looked to plug a “black hole” in the country’s finances and spur much-needed economic growth.
“October’s GDP underscores just how much difficulty the U.K. economy is going through as the government searches for some sort of growth,” Lindsay James, investment strategist at Quilter wealth management company, said in a note.
“This figure also misses what were already low expectations and doesn’t bode well for next month’s figure either.”
Looking ahead to the central bank’s rate decision next week, James added that Friday’s figures made it “increasingly likely the Bank of England will have to lower rates next week when it meets, but with inflation remaining persistently high, the pace at which subsequent cuts can be delivered remains questionable.”
The Bank of England’s Monetary Policy Committee will meet on Dec. 18 and is widely expected to agree on a quarter-point rate cut to 3.75%, as inflation cools.
Yael Selfin, chief economist at KPMG UK, said she expected growth to remain weak for the rest of the quarter, “as activity in November is likely to have been constrained because of continued Budget uncertainty.”
“Overall, we expect the GDP growth to be flat in the final quarter of this year,” she added.
