Threat of recession looms after UK economy shrinks more than expected

The fall in UK GDP in October raises fears that the economy could shrink in the final three months of 2023. Credit: AP

The size of the UK economy shrank more than expected in October as the manufacturing and construction sectors were hit by poor weather.

Gross domestic product (GDP) is thought to have fallen 0.3% during the month, down from 0.2% growth in September, the Office for National Statistics (ONS) said.

It came as all three of the main sectors that the ONS tracks fell into negative territory for the first time since July. Economists had expected GDP to contract by just 0.1%.

“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,” said ONS director of economic statistics Darren Morgan.

He added: “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.”

Following the announcement, the pound took a plunge and is down a third of a cent against the US dollar at the time of writing.

Thomas Pugh, and economist at audit, tax and consulting firm RSM UK, told The Guardian that the report "has our recession warning indicators flashing red".

"However, growth should pick up over the rest of the quarter as a sharp fall in inflation, strong wage growth and government transfers to low-income households all give consumer spending a boost.

‘In any case, the 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."

Shadow Chancellor of the Exchequer Rachel Reeves. Credit: AP

Meanwhile, Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, said the report indicates that economic growth is "going backwards".

“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," she said.

Ms Reeves added: “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."

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