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Britain’s economy unexpectedly shrank in October as consumers held back on spending before Rachel Reeves’s budget and car manufacturing struggled to recover from the cyber-attack on Jaguar Land Rover.
Figures from the Office for National Satistics (ONS) showed gross domestic product fell by 0.1%, after a 0.1% drop in output in September. City economists had predicted a 0.1% rise in October.
Highlighting caution among businesses and households in the run-up to the chancellor’s multibillion-pound tax-raising budget, the ONS said a sharp 0.3% decline in output in Britain’s dominant service sector contributed most to the fall.
Much of the decline was driven by weakness in car sales and broader retail spending, alongside a slump in computer programming and consultancy activities.
The ONS said businesses across all three main sectors of the economy – services, manufacturing and production – reported that they, or their customers, were “waiting for the outcomes of the budget”. The biggest impact was felt by manufacturers, construction companies, wholesalers, computer programmers, real estate firms, and employment agencies.
It comes as the Bank of England mulls cutting interest rates next week amid a slowdown in headline inflation and fears over a sluggish growth outlook and rise in unemployment.
The latest snapshot will probably cement City predictions for a sixth reduction in borrowing costs since the summer of last year, after the chancellor’s budget included a number of inflation-cutting measures alongside sweeping tax rises.
Scott Gardner, investment strategist at JP Morgan Personal Investing, said the chancellor’s budget had a “numbing effect” on the economy.
He said: “Budget speculation and uncertainty around potential tax changes dampened the mood among businesses and consumers, leading some to delay key decisions until the budget had been delivered.
“With growth now firmly in the slow lane, there is a clear feeling that the economy this year has taken two steps forward and one step back.”
Threadneedle Street has said Reeves’s policies – including relief on energy bills, prescription charges and fuel duty – could cut headline inflation by as much as half a percentage point next year.
Mel Stride, the shadow chancellor, said the government’s “economic mismanagement” had directly contributed to the weakness in economic growth.
A Treasury spokesperson said: “We are determined to defy the forecasts on growth and create good jobs, so everyone is better off, while also helping us invest in better public services.”
The ONS said GDP over the broader three months to the end of October also fell by 0.1%, below City estimates for zero growth over the period.
Economic output fell in September after hackers breaching JLR’s systems resulted in the country’s second-largest carmaker halting its UK production lines for several weeks.
In an incident estimated to have cost the economy at large up to £1.9bn, the halt crippled hundreds of smaller companies in the manufacturer’s supply chain, causing monthly output in the car industry to collapse by a third.
However, the ONS warned there had only been a “small recovery” in output in October as activity rebounded by 9.5%, leaving the industry still 21.8% below the levels seen in August.
Against a backdrop of wider pre-budget weakness, overall manufacturing output rose by 0.5%, falling short of City estimates for a 1% recovery from the JLR attack.
