The UK economy continued to shrink in October, marking the second consecutive month of contraction—a first since the COVID-19 pandemic. According to the Office for National Statistics (ONS), economic output fell by 0.1%, mirroring September’s decline.
Key Sectors Struggle
The ONS data revealed zero growth in the services sector, which accounts for the largest portion of the UK economy. Meanwhile, manufacturing and construction saw declines of 0.6% and 0.4%, respectively. These figures surprised economists, who had anticipated modest growth for the month.
Impact of Budget Announcements
The downturn in October coincided with heightened economic uncertainty ahead of Labour’s first budget under Prime Minister Sir Keir Starmer. Critics argue that warnings from Chancellor Rachel Reeves about a “£22bn black hole” in public finances unnerved businesses and consumers.
The opposition Conservatives accused Labour of fabricating the figure to justify higher spending plans kept under wraps during the general election campaign. The Treasury’s warning is said to have negatively impacted consumer confidence and business sentiment since mid-year, dampening economic activity.
Business Reaction to Budget Measures
Labour’s budget, unveiled on 30 October, focused on raising taxes for businesses and wealthier individuals while sparing working households from additional financial strain. However, business leaders have criticised the measures, including increased employer National Insurance contributions and stricter employee rights legislation.
Employers argue these policies will stifle investment, reduce job creation, and drive up prices as companies pass on the costs. Chancellor Reeves defended the budget, highlighting plans for economic growth through initiatives such as a £70bn National Wealth Fund, a 10-year infrastructure strategy, and pension mega-funds to boost investment in British industries and clean energy.
“We are determined to deliver economic growth because higher growth means improved living standards for everyone,” Reeves stated.
Opposition and Economic Outlook
Shadow Chancellor Mel Stride blamed Labour’s decisions for the economy’s poor performance, stating: “This fall in growth demonstrates the damaging impact of the government’s policies. The consequences will be felt by families through higher taxes, job losses, and increased costs of living.”
Despite the economic turbulence, the Bank of England predicts that higher public spending could boost GDP growth in 2025, with anticipated interest rate cuts providing additional support to private sector demand.
Analysts’ Perspective
Yael Selfin, chief economist at KPMG UK, noted that uncertainty surrounding the budget had significantly impacted business and consumer confidence in October. She warned of a slow pace of growth in the final quarter of the year, citing the higher tax burden and geopolitical tensions.
However, Selfin expressed optimism for the medium term, suggesting that increased government spending and easing interest rates could stimulate economic recovery in 2025.
As the UK economy navigates these challenges, policymakers and businesses face mounting pressure to balance short-term stability with long-term growth strategies.
