UK Economy Shrank in October Threatening Rishi Sunak’s Growth Pledge

Prime Minister Rishi Sunak hosts a press conference inside the Downing Street Briefing Room in central London, on Dec. 7, 2023. (James Manning/POOL/AFP via Getty Images)

The UK economy flatlined in the three months leading up to October and contracted by 0.3 percent in October, official data shows.

In a blow to Prime Minister Rishi Sunak, who at the beginning of the year pledged to grow the economy, saw contractions across all three main sectors.

The Office of National Statistics (ONS) data for October showed falling output in services, production and manufacturing.

Monthly GDP has fallen by 0.3 percent in October, following 0.2 percent growth in September 2023.

The services sector, which in the UK has always been the strongest part of the economy, fell by 0.2 percent.

Information and communication services, including computer programming, consultancy and motion picture, video and TV production, were the main drivers to the drop.

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The fall in GDP was also caused by “widespread falls in manufacturing and construction, which fell partly due to the poor weather,” said director of economic statistics at the ONS, Darren Morgan.

Widespread declines in manufacturing drove a 0.8 percent fall in production, while the construction sector fell by 0.5 percent.

A broad-based fall across the economy comes as bad news for Mr. Sunak who has pledged to grow the economy this year.

Meanwhile, the economy is not reflecting the positive trends, promised by the government in January. The ONS reported a 0.7 percent drop in professional, scientific and technical activities.

At the construction sector level, the main contributors to the October decrease were private housing new work and private commercial new work. The values in the sectors decreased 5.2 percent and 1.2 percent respectively.

The wet weather period in October led to a notable drop in construction and outdoor recreation activities.

These falls were partially offset by growth in wholesale and retail trade and repair of motor vehicles and motorcycles, which grew by 2.2 percent on the month.

The ONS’s retail bulletin, however, noted a continued divergence between the volume of sales and the amount spent.

When compared with the pre-pandemic level in Feb. 2020, retail sales value in October were 16.9 percent higher, but the volumes were 3.1 percent lower. The ONS attributed this to a rise in inflation.

Spectre of Recession

Should the economy officially enter a recession, as economists expect it to do starting in the last quarter of the year, Downing Street will face a major challenge in the upcoming pre-general election period.

Chancellor Jeremy Hunt said that a subdued GDP was “inevitable,” while “interest rates are doing their job to bring down inflation.” He expects the economy to start growing again, after having announced “big reductions in business taxation” in the Autumn Statement.

Despite the economy flatlining in October, Home Secretary James Cleverly told the BBC that Downing Street is “committed to take action” to ensure growth.

However, the shadow Chancellor Rachel Reeves argued that Labour was the only party with a long-term growth plan for the economy.

“Rishi Sunak ends the year failing to deliver on the economy,” she said on X, formerly known as Twitter.

According to Thomas Pugh at consulting firm RSM UK, Britain’s big picture “is still one of a stagnating economy.”

“We doubt growth will materially pick up until towards the end of next year, meaning that the spectre of recession will hang over the UK economy for a long time yet,” Mr. Pugh added.

In the past year, the government has been working towards stopping the stubborn growth of interest rates and halving the inflation.

The Bank of England (BoE) has been consecutively raising interest rates in the past two years, before pausing the trend in September, with the rate currently standing at 5.25 percent. The bank’s Monetary Policy Committee, which sets the interest rate, will meet on Thursday to set the new rate.

Bloomberg analysts expect a year-long recession to start in the last quarter this year if the BoE raises the interest rate by 5.75 percent by November.