UK economy shrank 0.3% in October
Newsflash: The UK economy contracted in October, with the country’s services, production and construction sectors all shrinking.
UK GDP contracted by 0.3% on a monthly basis, new data from the Office for National Statistics shows, following growth of 0.2% in September.
That’s worse than 0% change in GDP expected by economists for October.
The ONS says:
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Services output fell by 0.2% in October 2023, driven by a fall in information and communication, and was the main contributor to the fall in growth in GDP; this follows growth of 0.2% in September 2023.
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Production output fell by 0.8% in October 2023, driven by widespread declines in manufacturing, after showing no growth in September 2023.
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The construction sector fell by 0.5% in October 2023 after growth of 0.4% in September 2023.
Over the last quarter, GDP was unchanged, the ONS says.
Key events
Sanjay Raja, UK economist for Deutsche Bank, expects this morning’s GDP report (due at 7am) will show output flatlined in October, after a surprise jump of 0.2% in September.
Raja says:
How will GDP breakdown in October? We see both services and industrial production coming in flat (0% m-o-m). Construction output, however, we think will shrink – albeit marginally. Risks to our forecast are skewed marginally to the downside.
And looking further ahead, Raja predicts the economy will grow slightly in the final quarter of this year:
We expect Q4-23 GDP to edge up by 0.1% q-o-q. The bad news? Recession clouds remain, with around half the Bank of England’s rate hikes yet to feed through into the real economy. There is some good news emerging, however. Recession clouds are starting to clear away with recent survey data turning markedly less pessimistic.
We continue to think that the UK economy will avoid a recession next year, instead growing by 0.3% in 2024. But sluggish growth is here to stay. We see the economy growing by only 0.1% in H1-24, before picking up steam in H2-24 and beyond.
Introduction: It’s UK GDP Day
Good morning. We’re about to learn how the UK economy performed in October.
At 7am, the Office for National Statistics will publish its first estimate for October’s UK GDP.
And City economists fear it will be an unimpressive report, with growth expected to have flatlined during the month.
That would follow zero growth in the third quarter of 2032, as the UK economy stagnated under the effect of high interest rates.
Michael Hewson, chief market analyst at CMC Markets UK, says:
With the UK having just about avoided a contraction in Q3 some of the more recent economic data as we head into Q4 has shown a modest improvement, raising the prospect that the UK economy might avoid a recession at the end of this year.
When you consider that a year ago both the IMF and the Bank of England were predicting a long recession that is no small feat.
Today’s GDP report comes a day before the Bank of England announces its final scheduled interest rate decision of 2023; it’s expected to leave rates on hold at 5.25% at noon tomorrow.
Later today, the US central bank will set interest rates – and is also forecast to keep rates at current levels. But investors around the world will be watching for hints as to when, and how fast, the Federal Reserve might start cutting rates.
The agenda
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7am GMT: UK GDP report for October
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7am GMT: UK balance of trade for October
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10am GMT: Eurozone industrial production index for October
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1.30pm GMT: US PPI index of producer price inflation for November
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7pm GMT: US Federal Reserve sets US interest rates
