The º£½ÇÊÓƵ economy has ceased to grow since Labour came into power, posing a significant challenge for Keir Starmer who had placed economic expansion at the heart of his administration's agenda.
The latest figures from the Office for National Statistics reveal an unexpected contraction of 0.1 per cent in October, defying forecasts of a 0.1 per cent increase and leading to a dip in the value of the pound against the dollar, as reported by .
A notable decline in production output and a climate of uncertainty impacting the services sector prior to the Budget have been contributing factors.
"There is a risk that the º£½ÇÊÓƵ is slipping back into stagflation territory," commented Thomas Pugh, an economist at RSM consultancy. He added, "However, it’s likely that at least some of the weakness in October was driven by a pre-Budget ‘wait and see’ attitude by consumers and businesses and we still expect the economy to reaccelerate into 2025."
This downturn marks the first back-to-back monthly shrinkage since the Covid-19 pandemic began, with GDP also decreasing by 0.1 per cent in September. Despite outperforming its G7 counterparts with a growth of 1.2 per cent in the first half of the year, the º£½ÇÊÓƵ's economic momentum has stalled following Starmer's election victory on a promise to stimulate growth.
"Growth was highlighted during the election campaign as being the prize, the magic that makes us all wealthier," observed Danni Hewson, AJ Bell's head of financial analysis. She noted, "But the formula for that magic has proved elusive."
Since Keir Starmer's tenure began, GDP has seen a contraction of 0.1 per cent, followed by stagnation in July and a slight rise of 0.2 per cent in August. Labour's Chancellor Rachel Reeves commented on the recent figures: "The numbers on today’s GDP are disappointing, but it’s not possible to turn around more than a decade of poor economic growth and stagnant living standards in just a few months."
These developments contribute to Labour's economic woes as economists offer pessimistic projections regarding the impact of the party's first Budget which saw tax hikes amounting to an additional £41bn annually.
Business leaders have expressed concerns that increased labour costs resulting from these fiscal changes will lead to higher consumer prices and job reductions. A survey published last Friday indicated that consumer confidence remained low in December.
The Bank of England is expected to implement more gradual interest rate cuts in the coming months in comparison to other major Western central banks, due to cooling job markets and escalating energy costs.
Meanwhile, fears loom of potential trade conflicts with the US as President-elect Donald Trump vows to impose tariffs of 20% on EU and º£½ÇÊÓƵ imports. Paul Dales, chief º£½ÇÊÓƵ economist at Capital Economics, speculated: "There is every chance that the economy went backwards in the fourth quarter as a whole," casting doubt on whether GDP will align with the Bank of England's forecast of 0.3 per cent growth for the quarter.
Sanjay Raja, chief º£½ÇÊÓƵ economist at Deutsche Bank, stated: "The risk of a quarterly contraction is no longer negligible. Domestic uncertainties arising from the Budget have still yet to clear and external headwinds via the spectre of trade war adds to business uncertainty going into 2025."
