The UK economy shrunk again in October, according to official figures, highlighting the scale of the challenge facing Rachel Reeves in her mission to ensure the UK has the fastest growth in the G7.
The Office for National Statistics (ONS) said output fell by 0.1 per cent in October following the 0.1 per cent decline recorded for the previous month - the first time the economy has contracted for two consecutive months since March and April 2020, during the onset of the Covid-19 pandemic.
The economy ground to a halt in the second half of this year after recording the best expansion in the G7 at the start of 2024.
The latest figures cover the month ahead of the government’s first budget, which saw Labour unveil £40bn worth of tax rises.
Some industries, like manufacturers, retailers and recruiters, said turnover was affected as they waited for the outcome of the tax-setting statement, according to the ONS’s monthly business survey.
It is an unexpected blow for Ms Reeves, as most economists had been expecting GDP to rise by 0.1 per cent during the month.
The chancellor described the figures as disappointing, but maintained that the government has “put in place policies to deliver long-term economic growth”.
“We are determined to deliver economic growth as higher growth means increased living standards for everyone, everywhere. This is what our Plan for Change is all about”, she said.
“We have put public finances back on a stable footing, capped the rate of corporation tax at the lowest level in the G7, established a £70bn National Wealth Fund to drive growth in our towns and cities, launched a 10-year infrastructure strategy and are creating pension mega funds to boost investment in British businesses, infrastructure and clean energy.”
Liz McKeown, the ONS’s director of economic statistics, said: “The economy contracted slightly in October, with services showing no growth overall and production and construction both falling.
“Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms. However, the economy still grew a little over the last three months as a whole.”
Labour has put economic growth at the centre of its plan for the economy but there are concerns the scale of the tax rises announced at the budget could put a dampener on the plans, with the Liberal Democrats demanding the government reverse the increase to employers’ national insurance contributions.
Treasury spokesperson Daisy Cooper said: “This unexpected fall in GDP shows why it’s so disappointing that the Budget missed so many opportunities and made so many self-defeating decisions.
“Small businesses are the engine of our economy and drive growth. Yet this government has decided to burden them with more costs.
“If the government wants to turn these figures around then they should realise their mistake and reverse their NICs hike on small business.”
Meanwhile, shadow chancellor Mel Stride said the impact of the declining growth figures will be “felt by families through higher taxes, fewer jobs, higher prices and higher interest rates”.
He said: “It is no wonder businesses are sounding the alarm. This fall in growth shows the stark impact of the Chancellor's decisions and continually talking down the economy.”
But the Confederation of British Industry (CBI) said UK firms “remain hopeful that things will improve in the New Year”.
“It may take a few more months for firms to work through the impact of the sharp increase in employment taxes outlined in the Budget and adjust their hiring and investment plans accordingly.
“But businesses can probably still look forward to a steady, if unspectacular, economic recovery next year as the impact of the inflation shock fades and interest rates come down further.
“The government can support business confidence by accelerating measures that could restore some headroom for investment”, Ben Jones, the organisation’s lead economist said.
