UK economy grew 0.5% in October
The economy grew by 0.5 per cent in October after contracting the previous month when an extra Bank Holiday for the Queen’s funeral suppressed growth.
The modest return to month-on-month growth in gross domestic product, the main measure of economic output, followed contractions of 0.1 per cent in August and 0.6 per cent in September. Economists had forecast growth of 0.4 per cent in October.
The October reading is likely to determine whether the UK is in recession or not. GDP fell by 0.2 per cent in the third quarter of the year. Economists expected it to contract again in the present quarter, meeting the criteria for a technical recession — two quarters of negative growth.
Yael Selfin, chief economist at KPMG, said: “While GDP rose by 0.5 per cent in October, driven in part by the weaker September as a result of the additional bank holiday, we expect it to fall in the final two months of the year.”
Jeremy Hunt, the chancellor, said: “While today’s figures show some growth, I want to be honest that there is a tough road ahead. Like the rest of Europe, we are not immune from the aftershocks of Covid-19, Putin’s war and high global gas prices.”
In the three months to October, GDP fell by 0.3 per cent compared with the three months to July 2022. The Office for Budget Responsibility estimates the country is already in a recession that will wipe out eight years of growth in living standards.
The official forecaster said it expected the downturn to last just over a year, knocking 2 per cent off the size of the economy. The OBR has warned that such a decline would result in about a third of the depth of the recession that followed the financial crisis in 2008. This is set to be driven by a dramatic fall in living standards as inflation wears away the value of pay packets.
Disposable incomes, after adjusting for inflation, will fall by 4.3 per cent in 2022-23, which would be the largest fall since records began in the Fifties. It is set to be followed by the second largest fall — in 2023-24 — of 2.8 per cent.
“The squeeze on real incomes, rise in interest rates and fall in house prices all weigh on consumption and investment,” the OBR said.
As a result, it expects another 505,000 people will enter the unemployment register, pushing the jobless rate from its present level of 3.6 per cent to 4.9 per cent by the third quarter of 2024.
The expected downturn will be prompted by the cost of living crisis, economists have warned. Households have reigned in spending after inflation, which is at its highest level in more than four decades, eroded the value of their incomes. The consumer prices index (CPI) is thought to have peaked at 11.1 per cent in October, when households received their winter energy bills.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Consumer-facing sectors have continued to struggle; output in the distribution sector was 14 per cent lower than in January 2020 and 3.3 per cent lower than at the start of the year, despite rising by 1.9 per cent month-to-month in October.
“In addition, output in the hotels and restaurants sector was 1.8 per cent below its July 2022 peak, despite increasing by 0.6 per cent month-to-month. The rebound in GDP in October also was assisted by a 1.3 per cent rise in output in the health sector, which partly reflected the rollout of Covid booster jabs to vulnerable groups.”
UK economy grew 0.5% in October