The UK economy shrank for the second month in October

The UK economy shrank for the second month in a row in October as budget concerns continued to weigh on confidence.

Despite expectations that the economy would return to growth after the decline in September, official figures showed a decrease of 0.1%.

The Office for National Statistics (ONS) said activity had stalled or decreased, 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 that will deliver long-term economic growth.”

Shadow chancellor Mel Stride said: “This fall in growth shows the stark impact of the chancellor’s decisions and continued underestimation of the economy.”

Yael Selfin, chief economist at KPMG, said activity was “lagged by uncertainty ahead of the October 30 Budget” as businesses and consumers held back from spending.

But the ONS said some industries, such as property, law firms and accountancy, had brought forward work before Reeves announced the Budget.

Separately, a December survey measuring consumer confidence found that people were slightly more positive about their personal finances for the year ahead.

But findings from market research firm GfK said “opinions on the economy remain unchanged from November, suggesting people don’t know where we are going.”

“In summary, it is the ongoing grim view of the UK’s overall economic situation that is weighing on consumer confidence,” said Neil Bellamy, director of consumer insights at NIQ GfK.

Shortly after becoming prime minister in July, Sir Keir Starmer warned that the Budget would be “painful” after 14 years of Tory government.

He later denied that he had underestimated the economy.

ONS figures show the economy grew just once in the last five months.

Capital Economics said GDP was 0.1% lower than before Labor won the election in July.

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

“Instead, the impact of higher interest rates may last longer than we think.”

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

It is stated that the bank will meet next week for the final interest rate decision of 2024, but borrowing costs are not expected to be reduced again until next year.

Economists have warned against placing too much emphasis on October readings. This is the first estimate of economic growth made by the ONS and may be revised.

The economy grew by 0.1% in the three months through October.

The sharpest decrease in activity in October was recorded in the manufacturing industry, with a decrease of 0.6%, followed by the construction sector, with a decrease of 0.4%.

Meanwhile, the services sector, which makes up the bulk of the UK economy, stagnated with zero growth.

Rick Gaglio, owner of menswear store Twisted Fabric in Hitchin, Hertfordshire, said “people are still cautious” and added that prices were still relatively high.

“It just depends on inflation and customers are feeling these price increases,” he said.

Mr. Gaglio also said retail sales were slow during the summer due to wetter-than-usual weather.

“It was difficult,” he said. “2024 has been very, very challenging for small businesses in general, and we just want to hear more good news, not bad news.”

Sir Keir said he wanted Britain to deliver the highest sustainable economic growth among the G7 group of rich countries.

Last week, it set out additional “milestones” that will allow people to measure the government’s progress. On the economy, he promised to increase real household disposable income per capita.

He also reiterated his promise to build 1.5 million homes in England.