The UK economy experienced a contraction in October, reflecting reduced output in the production and construction sectors, which intensifies the pressure on the Bank of England as it approaches a crucial interest rate decision. The monthly gross domestic product (GDP) in the UK fell by 0.1% in October, matching the decline seen in September, as per data released by the Office for National Statistics on Friday.
Analysts had forecasted an increase of 0.1% for the month. On an annual basis, the economy grew by 1.3%, a slight improvement from 1% in the previous month, although it fell short of the anticipated growth forecast of 1.6%. For the quarter ending in October, real GDP showed a marginal increase of 0.1% compared to the previous three-month period, buoyed by growth primarily in the services and construction sectors.
The Office for National Statistics indicated that production output was the most significant detractor from economic performance, declining by 0.6% in October following a 0.5% decrease in September, with manufacturing, mining, and quarrying showing particular weakness. This decline was somewhat balanced by modest gains in utilities, including electricity, gas, and waste management.
Meanwhile, the construction sector faced challenges, with four out of nine subsectors reporting declines, particularly in private housing repair and maintenance. In contrast, the services sector exhibited mixed results, with seven out of 14 subsectors expanding, largely propelled by growth in information and communication.
As the Bank of England prepares for its next policy announcement on December 19, market analysts are closely examining the latest GDP figures for any potential impact on the central bank's decisions. ING analysts commented, 'However, unless growth materially disappoints, and that's not our base case, the Bank of England is going to remain laser-focused on inflation.
With services inflation stuck around 5%, next week's meeting is likely to be a bit of a non-event, with policymakers opting to keep rates on hold again until February.' Looking further ahead, ING expressed confidence that the UK economy is positioned to outperform most of Western Europe in the coming year, projecting an economic growth rate of 1.4% for Britain in 2025..