UK economy unexpectedly shrank in October in fresh blow for Rachel Reeves

The UKeconomy shrank by 0.1 per cent in October in a fresh blow for embattled chancellor Rachel Reeves.

The Office for National Statistics (ONS) said gross domestic product (GDP) fell by 0.1 per cent, following a 0.1 per cent decline in September. The economy has not grown since June, after no growth was recorded in August.

Most economists were expecting to see a rise of 0.1 per cent for October, anticipating that Jaguar Land Rover’s recovery would lead to a bounceback after a cyber attack on the carmaker in August hit the activity in the manufacturing sector.

The month-on-month car production activity increased by 9.5 per cent in October, but remained 21.8 per cent lower than in August when Jaguar Land Rover was forced to temporarily halt production.

ONS director of economic statistics Liz McKeown said: “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.”

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Many businesses have recently indicated that activity in the economy slowed in the lead-up to the Budget, delivered on 26 November, as speculation over possible tax measures grew.

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.”

Rising GDP signals economic growth, which is generally welcome news for the country’s companies, households and politicians. When GDP is falling, it means the economy is shrinking.

If it falls for two quarters in a row, the country is considered to be in a recession, which can hit wages and jobs.

The Treasury had been hopeful that stronger economic growth could help increase tax revenues and support government spending plans.

Shadow chancellor Sir Mel Stride blamed the Budget for the unexpected economic contraction, which he labelled a “direct result of Labour’s economic mismanagement”.

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The Conservative shadow minister said: “Rachel Reeves promised growth but Labour has no plan for the economy – just their own survival, that’s why Reeves presented a benefits Budget that rewards welfare, not work.

“For months, Rachel Reeves has misled the British public. She said she wouldn’t raise taxes on working people – she broke that promise again. She insisted there was a black hole in the public finances – but there wasn’t.”

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The latest figures also revealed that output was down 0.3 per cent across the dominant services sector and construction fell 0.6 per cent.

Barret Kupelian, chief economist at PwC, said: “Some of this weakness still reflects the cyber attack on Jaguar Land Rover, which knocked car output earlier in the autumn, but the bigger story is that speculation around the autumn Budget kept households and businesses in wait-and-see mode.

“Given the timing of the Budget, November’s GDP print is likely to look similarly subdued before any post-Budget effects start to show up.”