The UK economy contracted by 0.1% in October, marking the second consecutive monthly decline and defying economists' expectations for a rebound. The Office for National Statistics (ONS) reported the unexpected contraction, with persistent weakness in car manufacturing acting as a key drag on growth.
Economists had predicted a 0.1% rise for October, anticipating recovery after September's 0.1% decline. Instead, the economy continued to struggle, showing no growth since June. GDP has remained flat or fallen for four consecutive months.
The car manufacturing sector faced particular challenges. Liz McKeown, ONS director of economic statistics, explained: «Within production, there was continued weakness in car manufacturing, with the industry only making a slight recovery in October from the substantial fall in output seen in the previous month.»
The sector's troubles stem from a major cyber attack on Jaguar Land Rover that severely impacted production. The company made only a slight recovery in October from the substantial output fall in the previous month.
Budget Uncertainty Impact
Many businesses reported slowed activity ahead of the November 26 Budget, driven by growing speculation about possible tax measures. Economic policy uncertainty spiked in late October when the Prime Minister refused to guarantee no change to income-tax rates, according to economists Rob Wood and Elliott Jordan-Doak from Pantheon.
Chancellor Rachel Reeves' growth agenda faces mounting pressure from the weak economic data. The UK fiscal watchdog downgraded growth forecasts for every year from 2026 to 2030, finding that Budget measures would do little to stimulate growth.
Mixed Forecast Signals
The Confederation of British Industry upgraded its growth forecasts despite the weak October figures. The CBI now expects 1.4% growth this year, up from 1.2%, and 1.3% growth next year, up from 1.0%. However, Louise Hellem, CBI chief economist, told Reuters: «While it's welcome to see our growth forecast upgraded for next year, the mood music reads more 'cautious optimism' than 'cause for celebration'.»
Deutsche Bank took a more cautious stance, revising its fourth-quarter GDP growth projection down from 0.2% to 0.1%. Sanjay Raja, the bank's chief UK economist, told clients this week: «Budget uncertainty, we expect, will linger for much of Q4-25, negatively impacting the labour market, and consequently, spending. Business investment, we expect, will also be dampened, as a result.»
Parliamentary Scrutiny
The all-party Commons Treasury committee is investigating the Office for Budget Responsibility's forecasting performance and impartiality. The inquiry follows a dispute between the OBR and the chancellor over budget briefings. Richard Hughes, then boss of the OBR, complained to senior Treasury officials about leaks spreading misconceptions about the agency's forecasts.
The investigation will examine whether reforms are needed for the fiscal watchdog, which was established 15 years ago by then-Tory chancellor George Osborne.
Note: This article was created with Artificial Intelligence (AI).
