Britain’s economy declines in blow for Starmer – Daily Business

Britain’s economy shrank for the second consecutive month in October, putting pressure on the Bank of England to ease borrowing costs.

The last official figures before the October budget showed a 0.1% drop when the economy had been expected to return to growth following a fall in September.

The Office for National Statistics said that activity had stalled or declined in construction and production, while pubs, restaurants and retail were among sectors reporting “weak months”.

Sir Keir Starmer said last week it was the government’s “aim” to make the UK the fastest-growing G7 economy, and pledged to deliver higher real household disposable income by 2029.

However, companies have warned that Labour’s budget, which included £40bn of tax rises, will lead to slower growth and lower hiring.

The Bank of England’s monetary policy committee meets next week amid expectations that it will resist calls for another cut in interest rates, despite the contraction in the economy.

Luke Bartholomew, deputy chief economist at abrdn, said: “This is another disappointing GDP report, which will increase concerns that the economy lost steam in the run-up to the Budget. Monthly GDP data are very volatile, so it is important not to put too much weight on any one report.

“But this slowing is consistent with other economic data, all of which point to the economy having slowed considerably over the second half of the year. Nonetheless, the Bank of England is still likely to keep interest rates on hold next week, continuing with its “gradual” mantra about rate reductions.

“However, it is certainly possibly that the pace of rate cuts speeds up next year if the economy continues to slow and the labour market deteriorates more rapidly.”

Ben Jones, lead economist at the CBI, said: “Following these disappointing figures, businesses will be glad to see the end of 2024. Nevertheless, firms remain hopeful that things will improve in the New Year.

“It may take a few more months for firms to work through the impact of the sharp increase in employment taxes outlined in the Budget and adjust their hiring and investment plans accordingly.

“But businesses can probably still look forward to a steady, if unspectacular, economic recovery next year as the impact of the inflation shock fades and interest rates come down further.

“The Government can support business confidence by accelerating measures that could restore some headroom for investment.

“These include delivering flexibility to the Apprenticeship Levy, preparing a faster timetable to reform business rates and working in full partnership with boardrooms to develop a long-term modern industrial strategy that can provide the stability and certainty needed to unlock innovation, investment and grow the economy.”

Chancellor Rachel Reeves said: “We are determined to deliver economic growth as higher growth means increased living standards for everyone, everywhere. This is what our Plan for Change is all about.

“While the figures this month are disappointing, we have put in place policies to deliver long term economic growth.

“We have put public finances back on a stable footing, capped the rate of corporation tax at the lowest level in the G7, established a £70 billion National Wealth Fund to drive growth in our towns and cities, launched a 10 year infrastructure strategy and are creating pension mega funds to boost investment in British businesses, infrastructure and clean energy.”

Today’s GDP data coincides with the latest UK consumer confidence survey showing a modest uplift.

“Consumer confidence is still far from strong but there is some room for optimism,” saidNeil Bellamy, consumer insights director at GfK.