UK economy shrinks for the second month in October

The UK economy shrank for the second month in a row in October after official figures showed a 0.1% drop.

The economy had been expected to return to growth following a fall during September.

However, the Office for National Statistics (ONS) said that activity had stalled or declined, with pubs, restaurants and retail among the sectors reporting “weak months”.

Chancellor Rachel Reeves said the figure was “disappointing”, but added: “We have put in place policies to deliver long-term economic growth.”

KPMG’s chief economist Yael Selfin said that activity was “held back by uncertainty ahead of the Budget on 30 October” as businesses and consumers held back on spending.

The economy has grown just once over the past five months, according to Capital Economics, and is 0.1% lower than before Labour won the election in July.

“That suggests it’s not just the Budget that is holding the economy back,” said Capital’s chief UK economist Paul Dales.

“Instead, the drag from higher interest rates may be lasting longer than we thought.”

The Bank of England has cut interest rates twice this year but, at 4.75%, they are still relatively high compared with recent years.

The Bank will meet next week for the last interest rate decision of 2024, though it is not widely expected to reduce borrowing costs again until next year.