Britain’s economy shrank by 0.1% in October, underlining the scale of Labour’s challenge to get the economy growing.
Figures from the Office for National Statistics showed the unexpected fall in GDP was driven by declines in construction and production, while the dominant services sector stagnated.
Economists, polled by Reuters, had expected the economy to grow by 0.1%. It follows a decline of 0.1% in September and sluggish growth of 0.1% in the third quarter of the year, according to figures last month.
Keir Starmer said last week it was the government’s “aim” to make the UK the fastest-growing G7 economy, while pledging to deliver higher real household disposable income by 2029.
However, a range of companies have said they plan to slow spending and hiring after Labour’s budget in October, which included £40bn of tax rises.
Economists said the second successive monthly contraction in GDP meant the economy had grown for only one of the five months to October, and might mean the economy shrank for the fourth quarter as a whole.
The chancellor, Rachel Reeves, said the figures were “disappointing” but insisted Labour was putting the economy back on track for growth.
“While the figures this month are disappointing, we have put in place policies to deliver long-term economic growth,” said Reeves. “We are determined to deliver economic growth as higher growth means increased living standards for everyone, everywhere.”
Business groups have complained that measures announced in the budget, including an increase in employer national insurance contributions, add to their costs and deter investment.
Production output fell by 0.6% in October, because of falls in manufacturing, mining and quarrying, while construction fell by 0.4%.
“The economy contracted slightly in October, with services showing no growth overall and production and construction both falling,” said Liz McKeown, the director of economic statistics at the ONS.
“Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics and legal firms.”
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Paul Dales, the chief UK economist at Capital Economics, said it was “hard to tell how much of the fall is temporary as activity was put on hold ahead of the budget”.
“The clear risk is that more activity was cancelled or postponed after the budget,” he said, citing weak PMI data. “There is every chance that the economy went backwards in the fourth quarter as a whole.”
Figures last week showed that growth in the UK’s dominant services sector slowed to its lowest rate in more than a year in November as firms digested business tax rises in the budget.
The closely watched S&P Global UK services PMI survey scored 50.8 in November, slowing from 52.0 in October.