UK economy shrank by more than expected in October in a broad-based decline, official data showed Wednesday, hitting reverse as high interest rates took their toll.
Gross domestic product contracted 0.3 percent on sliding construction, manufacturing and services activity, the Office for National Statistics (ONS) said in a statement on the eve of the Bank of England’s latest rate decision.
That dashed market expectations for a milder decline of 0.1 percent and followed a 0.2-percent increase in September.
Added to the gloom, the economy was flat in the three months to October, the ONS also revealed.
“Services were the biggest driver of the fall with drops in IT, legal firms and film production — which fell back after a couple of strong months,” noted ONS director of economic statistics Darren Morgan.
“These were also compounded by widespread falls in manufacturing and construction, which fell partly due to the poor weather.”
British finance minister Jeremy Hunt cautioned that a string of BoE rate hikes, aimed at dampening inflation, had impacted activity.
“It is inevitable GDP will be subdued whilst interest rates are doing their job to bring down inflation,” Chancellor of the Exchequer Hunt said in reaction to the data.
The BoE has ramped up rates from a record low of 0.1 percent at the end of 2021, as it sought to bring down soaring inflation that sparked a cost-of-living crisis.
It currently stands at 5.25 percent — the highest level in more than 15 years — following 14 hikes in a row.
The BoE is widely forecast this week to hold borrowing costs steady, but markets will be looking for clues on when it would begin cutting interest rates as inflation cools.
“With the Bank of England expecting to leave interest rates unchanged on Thursday, this is shaping up to be a flatline festive period,” said analyst Nicholas Hyett at investment firm Wealth Club.
“GDP has gone nowhere over a three month period, as a bleak October offset some more positive numbers from the end of the summer.”
