UK economy shrinks between August and October

Economy bounces back in October, but still heading for recession

People demonstrate in central London against the rising cost of living. EPA

Former British prime minister Boris Johnson said workers should accept a pay cut to avoid spiralling inflation. AFP

Inflation in the UK hit an annual rate of 9.1 per cent in May. EPA

The British government told workers they cannot expect pay rises to keep up with the increasing cost of living. EPA

The Bank of England, which says it can do nothing to stop the sharp increase in prices, is raising rates at an unprecedented rate. AFP

The UK was also brought to standstill by the biggest rail strike in 30 years this week, with 40,000 RMT union members walking out in a row over a below-inflation pay offer. PA

The RMT picket line outside Bristol Temple Meads station. PA

The cost of petrol continues to rise. AFP

A protester demonstrates outside Downing Street. EPA

Volunteers in Bradford, northern England, prepare food parcels at the Bradford Central Foodbank. More and more people are visiting the centre. AFP

The UK economy shrank by 0.3 per cent in the three months to October, but saw a slight recovery from the monthly September figure, following the impact of an extra bank holiday for the queen's funeral.

The Office for National Statistics said gross domestic product grew by 0.5 per cent between September and October in a bounce back from a 0.6 per cent contraction the previous month.

That bounce back was more than economists had been expecting, and was the biggest monthly expansion in nearly a year.

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, accident and emergency 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 house building driving growth this month.

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

Predicted bounce

The respite for the UK economy is not expected to last and economists are predicted a prolonged, if relatively shallow, recession.

“Stretched household incomes could see sustained falls in consumer spending over the coming year,” said Yael Selfin, chief economist at KPMG UK.

“The bounce back in retail spending could be short-lived, which would mean another disappointing holiday season.”

“While today’s figures show some growth, I want to be honest that there is a tough road ahead,” Chancellor of the Exchequer Jeremy Hunt said.

“Our plan has restored economic stability and will help drive down inflation next year, but also lay the foundations for long-term growth through continued record investment in new infrastructure, science and innovation.”

The opposition Labour Party dismissed the monthly bounce as a blip and attacked the government's policies.

“Today’s numbers underline the failure of this Tory government to grow our economy, leaving us lagging behind on the global stage,” said shadow chancellor Rachel Reeves.

“There is a choice. We can continue down the road of managed decline, falling behind our competitors, or we can draw on bold thinking to propel us forward.”

Meanwhile, business organisations said the October figure was predictable and called on the UK government to concentrate on combatting high inflation, low productivity and falling business investment.

“As we approach 2023, the government has a choice to make between action and inaction,” said Alpesh Paleja, the Lead Economist at the Confederation of British Industry.

“The Prime Minister and Chancellor must use levers of growth not only to stem the severity of an upcoming downturn, but also to address the persistent weakness in investment and productivity. We cannot afford to have another decade where both are effectively stagnant.”

The continuing weakness of the UK economy will be foremost in the minds of the members of the Bank of England's Monetary Policy Committee when they announce their next decision on interest rates on Thursday.

“Overall, today’s data does not alter the picture of a slowing economy,” said Kitty Ussher, Chief Economist at the Institute of Directors.

“Taking a three-month view, the economy contracted by 0.3 per cent from August to October.

“It is this longer-term trend that will have more impact on the Monetary Policy Committee when it meets on Thursday to consider whether the time has come to slow the pace at which interest rates are rising.”