Britain’s economy unexpectedly shrank during the three months to October, official figures show, raising the likelihood of interest rate cuts by the Bank of England.
Data released by the Office for National Statistics (ONS) revealed that gross domestic product (GDP) contracted by 0.1% between August and October, against economists’ expectations for no change. In October alone, the economy also fell by 0.1%, defying forecasts for a 0.1% rise. While single-month figures can be volatile, the data indicates that the UK economy has not expanded since June.
The contraction reflected sharp declines in the services sector, which makes up the bulk of the economy, as well as in construction. Retailers were hit particularly hard, contributing to a 0.3% drop in services output for October. Manufacturing also struggled, failing to recover from disruptions in September caused by a cyber attack on Jaguar Land Rover.
These figures challenge the Bank of England’s previous expectation that GDP would rise by around 0.3% in the fourth quarter as a whole. Investors reacted quickly, assigning roughly a 90% probability of an interest rate cut when the central bank meets on December 18.
Finance Minister Rachel Reeves faced a challenging economic backdrop while preparing the government’s recent budget, which included a series of tax increases announced on November 26. The weak growth figures underscore the pressures on the government to support the economy amid slowing activity.
On an annual basis, the UK economy grew 1.1% in October compared with the same month last year, below economists’ forecast of 1.4%. The data highlights the uneven recovery across sectors, with services and construction showing particular weakness while other areas remain more resilient.
In response to the figures, the Treasury emphasized its commitment to fostering growth and creating jobs. A spokesperson said the government remains “determined to defy the forecasts on growth and create good jobs,” signaling ongoing efforts to support households and businesses.
Economists noted that the data underlines persistent challenges for Britain’s economic outlook, including inflationary pressures, supply chain disruptions, and weaker consumer spending. Retail and services sectors, key drivers of employment and activity, are particularly sensitive to these factors, and their underperformance adds to uncertainty in the coming months.
The latest figures add urgency to the Bank of England’s policy considerations as policymakers weigh the need to stimulate growth without reigniting inflation. With the economy showing no net expansion over the past four months, analysts say rate cuts may be required to support demand and restore momentum heading into 2026.
