GDP inched up 0.5% in October

The United Kingdom’s economy returned to growth in October with the Office for National Statistics (ONS) reporting economic growth of 0.5 per cent.

This slight economic growth for the month comes after a decline of 0.6 per cent in September when many businesses closed their doors during the national mourning period for the late Queen Elizabeth II. Car sales rebounded after a poor month amid a wider recovery in the country’s dominant service sector, while there was strong growth in activity in the health sector.

Construction continued a strong run, driven up by housebuilding, while manufacturing output grew. However, economic growth shrank by 0.3 per cent in the three months to October, reflecting concerns over the strength of the economy as consumers and businesses tightened their belts amid the highest rates of inflation for 41 years.

Despite a recovery in October, a return to contraction in November and December could spell a second consecutive quarter of decline – the technical definition of a recession. Analysts sshowed October’s recovery in consumer spending was likely to be short lived, despite hopes among retailers and hospitality firms that the World Cup in Qatar could help drive up sales during the festive season.

Business confidence tumbling

Economists said the October figures did not alter the overall picture of a slowing economy. However, David Bharier, the head of research at the British Chambers of Commerce, is reporting that “business confidence has been falling dramatically, as firms face into a wall of higher prices and energy bills, increased taxation, and rising borrowing costs”.

He added that, “unless the government helps create a stable environment to allow businesses to invest, the UK faces a long-term loss of competitiveness”.

With inflation above 11 per cent during Russia’s war in Ukraine driving up energy costs, the Bank of England is widely expected to further raise interest rates this Thursday for the ninth time in a row.

However, the rate-setting monetary policy committee is expected to be split with a minority of its nine members likely to push for a slower pace of rate increases amid the risk of a lengthy recession. The latest snapshot of the UK’s economy by the ONS showed output in consumer-facing services grew by 1.2 per cent for October, after a fall of 1.7 per cent in September, when many retailers temporarily closed for the Queen’s funeral.

Alongside a rise in car sales, the ONS reported that travel agencies and tour operators benefited from a stronger month, while output also grew for sports activities and amusements.

Possible sustained fall in consumer spending

Yael Selfin, the chief economist at KPMG UK, has assessed that “stretched household incomes could see sustained falls in consumer spending over the coming year, despite households tapping into their savings and increasing borrowing to help maintain their spending during the downturn”.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, is expecting the economy to shrink by up to two per cent in total over the course of the recession, adding “the government looks set to pull back energy price support substantially next year, while higher interest rates will squeeze disposable incomes and spur households and businesses to pay off debt…”.

For her part, Rachel Reeves, the shadow chancellor, opined that the ONS figures showed Britain was lagging behind on the global stage.

“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,” she said.

Jeremy Hunt, the chancellor indicated earlier that high inflation is slowing economic growth across the world, and the International Monetary Fund had forecast a third of the world economy will be in recession this year or next.

“While today’s figures show some growth, I want to be honest that there is a tough road ahead. Like the rest of Europe, we are not immune from the aftershocks of COVID-19, Putin’s war and high global gas prices,” Hunt acknowledged.