The British economy unexpectedly shrank by 0.1 per cent in October, adding to signs of a sharper slowdown than had been forecast – and increasingly the likelihood the Bank of England will up the pace of interest rate cuts.
Sterling has fallen back from recent strength as traders react to the figures, which came in well below forecasts of 0.1 per cent growth for the month.
The FTSE 100 will open at 8am. Among the companies with reports and trading updates today are Royal Mail, Boohoo and Tullow Oil. Read the Friday 13 December Business Live blog below.
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UK growth slows – but it could still lead Western Europe next year
James Smith, developed markets economist, UK, at ING:
‘Having started the year with an eyewatering – and indeed eyebrow-raising – 0.7% quarterly growth figure for 1Q, momentum has slowed considerably in the second half of the year. October’s monthly GDP saw activity fall for the second consecutive month, albeit only by a marginal 0.1%. Overall fourth-quarter GDP is likely to be flat, we think.
‘In reality, the story is more nuanced than that. Much of that early 2024 strength was concentrated in sectors that are less tangible and typically not consumer-facing. Service sectors with a clear consumer focus and more intrinsically linked to underlying economic fundamentals actually performed more strongly over the summer when the broader economy appeared to be slowing – albeit we did see a sizable drop in activity in these areas during October.
‘Our conclusion from this is that the economy has probably slowed down, but neither the initial boost nor the more recent sluggishness is likely to have been as extreme as this year’s monthly GDP data indicates.
‘We still think that the UK economy is poised to outpace most of Western Europe next year, judging by our2025 annual GDP forecasts. That perhaps says more about the health of other parts of the continent, but it also heavily reflects the recent fiscal stimulus.’
‘The UK economy should experience modest growth next year’
Hetal Mehta, head of economic research at St. James’s Place:
‘Today’s GDP data will be disappointing for the government especially as the decline follows a contraction in September. However monthly data are noisy and some slowdown from strong growth earlier in the year was to be expected.
‘With credit conditions loosening, interest rates moving lower and increased government spending on its way, the UK economy should experience modest growth next year.
‘ The positive signals from the housing market are a good cross-check for the economy and shows some resilience.”‘
UK economy shrinks unexpectedly
The British economy unexpectedly shrank by 0.1 per cent in October, adding to signs of a sharper slowdown than had been forecast – and increasingly the likelihood the Bank of England will up the pace of interest rate cuts.
Sterling has fallen back from recent strength as traders react to the figures, which came in well below forecasts of 0.1 per cent growth for the month.
