UK economy grew in October but respite set to be brief

The UK’s economy rebounded in October after a contraction in September when output was impacted by the extra bank holiday for the Queen’s funeral, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by a bigger-than-expected 0.5% between September and October in a bounce back from a 0.6% contraction the previous month.

The rebound marked the biggest expansion since November 2021 and was more than the 0.4% rise expected by most economists.

It comes after September was affected by the lower number of working days due to the additional bank holiday for the Queen’s state funeral.

But experts said the bigger picture is still one of a shrinking economy amid the cost-of-living crisis, with the UK set to suffer a prolonged recession.

The ONS said this is reflected in the less volatile data over the three months to October, which saw the economy drop by 0.3% compared with the previous three months.

Chancellor Jeremy Hunt 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.”

The Bank of England is still battling to rein in sky-high inflation that is weighing on growth and is set to hike interest rates again on Thursday despite the worsening economic outlook.

Economists are pencilling in a rise from 3% to 3.5% – which would be the highest level for 14 years.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said October’s rebound was a “false dawn for the economy”.

He said: “The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in gross domestic product (GDP) in November and December, despite a possible boost to consumer activity from the World Cup.

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

The ONS data showed the services sector – the biggest sector of the economy – expanded by 0.6% in October after a 0.8% drop in September, boosted by a recovery in car sales as well as the health sector due to a ramp up in Covid-19 tests and vaccinations.

The manufacturing sector rose by 0.7% and construction industry saw 0.8% expansion – the fourth monthly increase in a row.

Darren Morgan, ONS director of economic statistics, said: “The economy bounced back in October, recovering from the impact of the additional bank holiday for the state funeral.

“In particular, car sales rebounded after a very poor September, while the health sector also saw a strong month, with GP appointments, A&E attendance and the Covid-19 autumn booster campaign all driving up the sector.

“Construction continued its strong trend over the last year and stands at its highest level on record, with new housebuilding driving growth this month.

“However, over the last three months as a whole the economy shrank, with falls seen across services and manufacturing.”

Samuel Tombs, chief economist at Pantheon Macroeconomics, is predicting the UK to have officially entered a recession – as defined by two quarters in a row of falling output – by the end of the year.

GDP already shrank in the third quarter of 2022.

He said: “We think that GDP will fall by about 0.3% month-to-month in both November and December, leaving it down 0.2% on a quarter-on-quarter basis.”

He added: “The Government looks set to pull back energy price support substantially next year, while higher interest rates will squeeze disposable incomes and spur households and businesses to pay off debt.

“As a result, we continue to expect a peak-to-trough fall in the quarterly measure of GDP of about 2%, and doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G7 economies.”