Reeves: Economic growth is going backwards
Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, has warned that economic growth is ‘going backwards’, after GDP shrank 0.3% during October.
“Rishi Sunak ends the year having failed to deliver on his own promise to grow the economy. Economic growth is going backwards leaving working people worse off.
“After thirteen years the Conservatives have failed on the economy and after the chaos of the past few weeks Rishi Sunak is clearly too weak to deliver for Britain.
“Under Keir Starmer’s leadership the Labour Party has changed and is now the only party with a long-term plan to grow our economy, cut bills and make working people better off.”
💥 ouch!
Monthly #GDP can be volatile but the 0.3% m/m fall in October is disappointing, with services, manufacturing and construction all down… 🙁
Big picture – UK economy is flatlining. pic.twitter.com/QdBe3ArVfT
— Julian Jessop (@julianHjessop) December 13, 2023
Sunak could point out that the economy has grown (just) on an annual basis, with monthly GDP 0.3% larger in October than in October 2022.
But that’s a very anaemic result, a long way below trend growth.
Key events
Charts: How service sector struggled in October
The UK services sector shrank in October, by 0.2%, for the first time since July.
The main driver was the information and communication sector, where activity fell by 1.7%. That was driven by weaker output in the computer programming, consultancy, and movie, video and TV production sector.
Professional, scientific and technical activities fell by 0.7%, led by a 2.8% drop in legal work.
NHS strikes caused less disruption to the economy in October than September, according to today’s GDP report.
It shows that human health and social activities work grew by 0.4% in October 2023, driven by a growth of 0.5% in human health activities.
The ONS says:
There were three days of coordinated industrial action by junior and senior doctors in October 2023, where NHS England news reported that 118,026 appointments were rescheduled. This is less than the four days of strikes in September 2023, where another NHS England news article reported that 129,913 appointments were rescheduled.
There were also more Covid-19 vaccinations in October than September, as the latest vaccination campaign peaked.
Reeves: Economic growth is going backwards
Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, has warned that economic growth is ‘going backwards’, after GDP shrank 0.3% during October.
“Rishi Sunak ends the year having failed to deliver on his own promise to grow the economy. Economic growth is going backwards leaving working people worse off.
“After thirteen years the Conservatives have failed on the economy and after the chaos of the past few weeks Rishi Sunak is clearly too weak to deliver for Britain.
“Under Keir Starmer’s leadership the Labour Party has changed and is now the only party with a long-term plan to grow our economy, cut bills and make working people better off.”
💥 ouch!
Monthly #GDP can be volatile but the 0.3% m/m fall in October is disappointing, with services, manufacturing and construction all down… 🙁
Big picture – UK economy is flatlining. pic.twitter.com/QdBe3ArVfT
— Julian Jessop (@julianHjessop) December 13, 2023
Sunak could point out that the economy has grown (just) on an annual basis, with monthly GDP 0.3% larger in October than in October 2022.
But that’s a very anaemic result, a long way below trend growth.
The fall in UK GDP in October raises fears that the economy could shrink in the final three months of 2023.
That would put Britain on the brink of recession.
Ben Jones, CBI Lead Economist, says:
“Output was weaker than expected in October, raising the prospect that the UK could see a small contraction over the fourth quarter as a whole. CBI business surveys suggest private sector activity will be flat into the New Year, with the labour market also softening.
“Businesses are gearing up for another tough year ahead. Faced with weak demand and ongoing pressures on costs, companies are taking a hard look at their overheads and pursuing a cautious approach to staffing levels and investment.
“With an election on the horizon, it’s important to avoid adding any extra layers of uncertainty to the business environment. Seeking as much consensus as possible on growth-enhancing measures, such as speeding up planning and grid connectivity or policies to encourage innovation and tech adoption, would help to build confidence and unlock further investment.”
Pound drops after GDP disappointment
The pound has fallen, following the news that Britain’s economy shrank by 0.3% in October.
Sterling is down a third of a cent against the US dollar today, to $1.2525.
Traders may be concluding that the Bank of England is more likely to cut interest rates in 2024, if the economy is weakening.
Lindsay James, investment strategist at Quilter Investors, says:
“UK GDP fell 0.3% month-over-month in October, down from 0.2% in September and missing estimates, piling the pressure on the Bank of England ahead of Thursday’s interest rate decision.
While no rate cuts are expected tomorrow, or for some time, it will be crucial to see how the BoE is monitoring economic growth going forward and what that might mean for the path of interest rates. Calls for rate cuts are likely to grow stronger should this sort of economic data persist.
Bad weather was one factor hitting the UK economy, reports ONS Director of Economic Statistics Darren Morgan.
Morgan says:
“Our initial estimates suggest that GDP growth was flat across the last three months. Increases in services, led by engineering, film production and education – which recovered from the impact of summer strikes – were offset by falls in both manufacturing and housebuilding.
“October, however, saw contractions across all three main sectors. Services were the biggest driver of the fall with drops in IT, legal firms and film production – which fell back after a couple of strong months.
These were also compounded by widespread falls in manufacturing and construction, which fell partly due to the poor weather.”
UK economy shrank 0.3% in October
Newsflash: The UK economy contracted in October, with the country’s services, production and construction sectors all shrinking.
UK GDP contracted by 0.3% on a monthly basis, new data from the Office for National Statistics shows, following growth of 0.2% in September.
That’s worse than 0% change in GDP expected by economists for October.
The ONS says:
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Services output fell by 0.2% in October 2023, driven by a fall in information and communication, and was the main contributor to the fall in growth in GDP; this follows growth of 0.2% in September 2023.
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Production output fell by 0.8% in October 2023, driven by widespread declines in manufacturing, after showing no growth in September 2023.
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The construction sector fell by 0.5% in October 2023 after growth of 0.4% in September 2023.
Over the last quarter, GDP was unchanged, the ONS says.
Sanjay Raja, UK economist for Deutsche Bank, expects this morning’s GDP report (due at 7am) will show output flatlined in October, after a surprise jump of 0.2% in September.
Raja says:
How will GDP breakdown in October? We see both services and industrial production coming in flat (0% m-o-m). Construction output, however, we think will shrink – albeit marginally. Risks to our forecast are skewed marginally to the downside.
And looking further ahead, Raja predicts the economy will grow slightly in the final quarter of this year:
We expect Q4-23 GDP to edge up by 0.1% q-o-q. The bad news? Recession clouds remain, with around half the Bank of England’s rate hikes yet to feed through into the real economy. There is some good news emerging, however. Recession clouds are starting to clear away with recent survey data turning markedly less pessimistic.
We continue to think that the UK economy will avoid a recession next year, instead growing by 0.3% in 2024. But sluggish growth is here to stay. We see the economy growing by only 0.1% in H1-24, before picking up steam in H2-24 and beyond.
Introduction: It’s UK GDP Day
Good morning. We’re about to learn how the UK economy performed in October.
At 7am, the Office for National Statistics will publish its first estimate for October’s UK GDP.
And City economists fear it will be an unimpressive report, with growth expected to have flatlined during the month.
That would follow zero growth in the third quarter of 2032, as the UK economy stagnated under the effect of high interest rates.
Michael Hewson, chief market analyst at CMC Markets UK, says:
With the UK having just about avoided a contraction in Q3 some of the more recent economic data as we head into Q4 has shown a modest improvement, raising the prospect that the UK economy might avoid a recession at the end of this year.
When you consider that a year ago both the IMF and the Bank of England were predicting a long recession that is no small feat.
Today’s GDP report comes a day before the Bank of England announces its final scheduled interest rate decision of 2023; it’s expected to leave rates on hold at 5.25% at noon tomorrow.
Later today, the US central bank will set interest rates – and is also forecast to keep rates at current levels. But investors around the world will be watching for hints as to when, and how fast, the Federal Reserve might start cutting rates.
The agenda
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7am GMT: UK GDP report for October
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7am GMT: UK balance of trade for October
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10am GMT: Eurozone industrial production index for October
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1.30pm GMT: US PPI index of producer price inflation for November
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7pm GMT: US Federal Reserve sets US interest rates
