December cut to UK interest rates ‘nailed on’ after economy shrinks unexpectedly in October – business live
UK economy SHRANK in October
Newsflash: Britain’s economy shrank unexpectedly in October, as the budget cast a shadow of uncertainty over the country.
UK GDP fell by 0.1% month-on-month in October, the Office for National Statistics reports, rather weaker than City expectations of a 0.1% increase.
That follows the 0.1% contraction in September, and no growth in August, and means the UK’s economic malaise continued in October.
Key events
Stride: Labour’s ‘economic mismanagement’ to blame
Shadow chancellor Sir Mel Stride has blamed the government’s ‘mismanagement’ of the economy for the unexpected fall in GDP in October, and in the August-October quarter.
Stride says:
“This morning’s news that the economy unexpectedly shrank in the three months to October is extremely concerning but it’s as a direct result of Labour’s economic mismanagement.
“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.”
December interest rate cut is ‘nailed on’ after UK GDP shrank in October
Economists are convinced that the Bank of England will respond to the UK’s weak economic performance by cutting interest rates next week.
The Bank’s monetary policy committee will make its final decision of the year on Thursday 18th December, and a rate cut to 3.75% appears highly likely now that the economy shrunk by 0.1% in October.
Ruth Gregory, deputy chief UK economist at Capital Economics, says:
The surprise 0.1% m/m contraction in the economy in October was especially disappointing given the increase in manufacturing output, which rebounded after September’s cyber-attack induced hit, and is a further reason to expect the Bank of England to cut interest rates next Thursday.
Suren Thiru, economics director at the ICAEW, says a pre-Christmas interest rate cut is “nailed on”:
“These figures confirm an off-colour October for the economy, with pre-Budget worries paralysing activity across key sectors, despite a boost to manufacturing from Jaguar Land Rover’s return to production.
“This dismal outturn may have been followed by a similarly turbulent November with the damage to business and consumer confidence from the frenzied speculation ahead of the Budget likely to have frozen wider economic activity.
“The aftereffects from the Budget may mean that the UK’s economic prospects are poorer over the near term, with the growing tax burden and a weakening jobs market likely to keep growth notably lower than the OBR expects.
“With these downbeat figures likely to further fuel fears among rate-setters over the health of the UK economy, a December policy loosening looks nailed on, particularly given the likely deflationary impact of the Budget.”
TUC general secretary Paul Nowak urges the Bank of England to help families and businesses with a rate cut:
“Bringing our economy back on track after 14 years of Tory chaos was never going to be straightforward. A volatile international context is not making this job any easier.
“After years of falling living standards, consumer spending is still very weak.
“The Government acted to boost household incomes at the Budget – it raised minimum wage, benefitting millions across the country, cut child poverty and funded energy payments to support living standards.
“The Bank of England should now recognise the impact that the living standards crisis has had on families’ and businesses’ finances and spending – and must deliver further cuts in interest rates next week”
According to my LSEG screen, an interest rate cut is an 89% chance. Last month, the Bank split 5-4 when they voted to leave rates on hold, so it only needs one voter (likely governor Andrew Bailey) to switch sides….
Treasury: We’re determined to defy the forecasts
A Treasury spokesperson has responded to the news that the economy shrank by 0.1% in October, saying:
“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.
“That is why the Chancellor is taking £150 off energy bills, protecting record investment in our infrastructure, and we are backing major planning reforms, the expansion of Heathrow and Gatwick airports, and the construction of Sizewell C.”
(* – The City had expected growth of 0.1% in October, so that’s one forecast defied already….)
Budget uncertainty, higher taxes on businesses, weak consumer confidence and Donald Trump’s trade wars all caused the UK economy to contract in October, says Raj Badiani, economics director at S&P Global Market Intelligence.
“Poor real GDP developments for the fourth consecutive month in October shows the impact of poor domestic demand conditions and higher payroll taxes on businesses, driven by fiscal policy changes and higher US tariffs. This has led to significant pressure on UK firms to delay recruitment and investment plans. Meanwhile, consumer confidence is stuck in a rut, hitting discretionary spending alongside triggering unusually high household saving rates.
“The latest leading data suggests continued growth struggles in the next few months, partly reflecting weakened business and consumer confidence due to the Autumn Budget. Growth should improve moderately from mid-2026, underpinned by the government’s significant spending plans and protected by the backloading of the Budget’s main fiscal adjustment measures until 2028. In addition, monetary policy should be less restrictive, with the Bank of England expected to lower the Bank Rate both next week and in February, due to disappointing labour market and GDP data.”
Slump in housebuilding in October
The 0.6% drop in construction output in October shows that the government is struggling to hit its goal of building lots more houses.
The ONS reports that this decrease came from decreases in both new work and repair and maintenance, which decreased by 0.7% and 0.6%, respectively.
At the sector level, the main contributor to the monthly decrease was private new housing, which fell by 2.4%.
The building boom remains devoid of any spark. Construction output was estimated by the @ONS to have decreased by 0.3% in the three months to October 2025 and by 0.6% on September’s efforts. The biggest losers over the month remained private new housing, which fell by 2.4% but… pic.twitter.com/B5vRzrURzm
— Emma Fildes (@emmafildes) December 12, 2025
Britain’s services sector failed to grow in the three months to October, which is a blow as it makes up so much of the economy.
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The ONS reports that output fell in seven of the 14 subsectors that make up the services sector, with the largest negative contributions in:
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professional, scientific and technical activities (down 1.6%), caused by falls in scientific research and development (down 6.2%) and architectural and engineering activities; technical testing and analysis (down 3.0%)
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other service activities (down 2.6%), caused by other personal service activities (down 4.6%)
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information and communication (down 0.4%)
ONS: businesses and customers were waiting for the budget
The ONS identifies pre-budget uncertainty as a factor hitting the economy in October.
In its GDP report, it says:
Businesses across the production, construction and services sectors reported that they, or their customers, were waiting for the outcome of the Autumn Budget 2025 announcement on 26 November 2025.
These comments came from a range of industries, but were mainly from manufacturers, construction companies, wholesalers, computer programmers, real estate firms, and employment agencies.
Economy grew just 1.1% over last year
Today’s GDP report also shows the economy only grew by 1.1% over the last year – a weak performance.
The ONS says:
GDP is estimated to have grown by 1.1% in the three months to October 2025, compared with the same three months a year ago. Over this period services grew by 1.5% and construction grew by 1.1%, whereas production fell by 1.3%.
GDP is estimated to be 1.1% higher in October 2025, compared with October 2024.
ONS: Why economy contracted
Here’s ONS Director of Economic Statistics Liz McKeown explaining why the economy shrank in October, and over the last three months:
“The economy contracted slightly in the latest three months, as production fell again and services growth stalled.
“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.
“Overall services showed no growth in the latest three months, continuing the recent trend of slowing in this sector. There were falls in wholesale and scientific research, offset by growth in rental and leasing and retail.”
Worst three-month GDP growth since December 2023
The UK economy also shrank by 0.1% in the three months to October (a better measure than the monthly data).
The ONS says this is the first three monthly fall in real GDP since December 2023.
Services and construction shrank, but production grew
The UK economy shrank in October despite a small boost from the reopening of Jaguar Land Rover’s factories after a cyber attack.
The ONS reports that the services sector fell by 0.3% and construction fell by 0.6% in October.
That more than cancelled out a 1.1% rise in production activity.
UK economy SHRANK in October
Newsflash: Britain’s economy shrank unexpectedly in October, as the budget cast a shadow of uncertainty over the country.
UK GDP fell by 0.1% month-on-month in October, the Office for National Statistics reports, rather weaker than City expectations of a 0.1% increase.
That follows the 0.1% contraction in September, and no growth in August, and means the UK’s economic malaise continued in October.
Copper price hits record highs
The copper price, a gauge of global growth prospects, has just hit an alltime high.
The benchmark three-month copper price on the London metal exchance has hit a record high of $11,952 per metric tonnne.
And in Shanghai, copper futures have hit a new record high of 94,570 yuan per metric ton.
“Doctor Copper” is viewed as a useful measure of the overall health of the economy, as demand rises when firms are investing in new construction, manufacturing, and electrical equipment.
CBI lifts 2026 growth forcast after budget
The Confederation of British Industry has bumped up its economic growth forecast for next year, Reuters reports, citing a temporary boost to government spending following the budget.
It also warned, though, that deep-rooted problems remain within the economy.
The business association predicted the economy will grow 1.3% next year, up from its previous forecast of 1.0% in June, bringing the CBI broadly into line with forecasts from the International Monetary Fund and the OECD.
It raised its forecast for this year to 1.4% from 1.2%, reflecting upward revisions to recent official data.
CBI chief economist Louise Hellem said:
“While it’s welcome to see our growth forecast upgraded for next year, the mood music reads more ‘cautious optimism’ than ‘cause for celebration’.”
The CBI also sees consumer prices rising by 2.6% next year, slightly more than the Bank of England forecast last month.
MPs announce inquiry into work of Office for Budget Responsibility
Phillip Inman
MPs have launched an inquiry into the role and performance of the Office for Budget Responsibility.
The all-party Commons Treasury committee will spend until the end of next month investigating the independent agency’s forecasting performance and impartiality. The panel will consider whether reforms are needed 15 years after the OBR was set up by George Osborne when he was Tory chancellor.
MPs on the committee are understood to be concerned after a row broke out between the OBR and the chancellor, Rachel Reeves, over budget briefings.
Richard Hughes, the OBR’s then boss, complained to senior Treasury officials in the run-up to the budget about a flurry of leaks he said had spread “misconceptions” about the agency’s forecasts…. More here.
Deutsche Bank’s chief UK economist, Sanjay Raja, suspects the impact of budget uncertainty will “linger” through most of the last quarter of the year.
Raja told clients this week:
After a slip up in September, we expect the first tranche of Q4-25 data to err more on the sluggish side – particularly when it comes to underlying growth. But a rebound in auto-manufacturing, following the cyber attacks on Jaguar Land Rover, will likely see the manufacturing sector bounce back into positive territory. Stronger oil and energy output will also help lift activity. But we don’t expect the services sector – the UK’s growth engine – to move. Construction output, we think, will also contract. Altogether, we expect GDP to edge up by only 0.1% m-o-m.
Where to next? We have revised down our Q4-25 GDP growth projection from 0.2% q-o-q to 0.1% q-o-q. Budget uncertainty, we expect, will linger for much of Q4-25, negatively impacting the labour market, and consequently, spending. Business investment, we expect, will also be dampened, as a result. Overall, we see 2025 GDP growth at 1.4% (unchanged relative to our prior expectations).
Introduction: UK GDP report for October coming up….
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The important thing about last month’s budget is that we now have certainty, as one FTSE 100 CEO told me last week; no more endless speculation about which taxes might rise, for example.
But this morning, we’ll learn how much economic damage was caused by budget uncertainty in the run-up to the November’s fiscal event.
October’s GDP report, due to be released at 7am, is expected to show the economy strugled back to growth after a small contraction the previous month. GDP is forecast to have risen by 0.1% in October, having shrunk by 0.1% in September.
The restart of operations at Jaguar Land Rover’s factories in early October, after a cyber attack, should spur activity higher in the manufacturing sector.
On the other hand, though, the swirling speculation around what might be in the budget has hurt consumer sentiment and business investment; that could show up in the data too.
Michael Brown, senior research strategist at brokerage Pepperstone, points out that that this monthly data can be volatile:
On the data front, this morning’s UK GDP stats are set to show the economy having stagnated in October, largely as a result of pre-Budget uncertainty freezing business investment and consumer spending alike, though the monthly data remains very noisy indeed, with relatively little by way of signal able to be extracted from the report.
We’ll see what we can dig out of it, though.
The agenda
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7am GMT: UK GDP report for October
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7am GMT: UK trade report for October
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7.45am GMT: French inflation report for November
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8am GMT: Spanish inflation report for November
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1.30pm GMT: US national activity index for September
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4pm GMT: Russia’s GDP report for Q3
