Britain's economy unexpectedly shrank by 0.3% in October as households and businesses came under growing pressure amid the cost of living crisis.
The Office for National Statistics said that gross domestic product (GDP) fell on the month, after growth of 0.2% in September, with contractions across all main sectors of the economy. City economists had forecast zero growth.
The UK’s dominant services sector was the biggest driver of the fall in output, with declines in IT, legal firms and film production. These were compounded by widespread falls in manufacturing and construction after poor weather led to a drop in activity.
The figures come as the Bank of England prepares to keep interest rates on hold on Thursday for a third consecutive time against a backdrop of stubbornly high inflation and growing concerns over the impact of 14 previous increases on households and businesses.
While inflation has fallen back in recent months, officials at Threadneedle Street, including the Bank’s governor, Andrew Bailey, have warned that borrowing costs will need to remain high for a prolonged period to ensure it falls back to the 2% target set by the government.
Inflation fell back from 6.7% in September to 4.6% in October. Official figures for November are due to be released on Wednesday next week. The decline does not mean prices are going down, only that they are rising less rapidly.
With Rishi Sunak having met his primary target to halve inflation this year, the government has focused attention in recent months on rebooting economic growth from among the weakest periods for national output in decades. With a general election looming, the chancellor, Jeremy Hunt, announced £20bn of tax cuts for workers and businesses targeted at growing the economy.
However, the Bank has warned that Britain’s economy faces a 50-50 chance of a recession next year as higher living costs and elevated interest rates weigh heavily on households and businesses.
This article was written by Richard Partington Economics correspondent from The Guardian and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.