The UK economy stumbled once again in October. The latest GDP data released today by the ONS confirms a second consecutive monthly contraction, and underscoring the extent to which pre-Budget uncertainty has weighed on business activity, consumer confidence and investment decisions, reports WealthDFM’s Sue Whitbread.
As economists and market strategists dissect the figures, a clear narrative is emerging: the economy entered the crucial run-up to the Budget on fragile footing, with weak momentum across services, construction and manufacturing, and the added uncertainty did little favour for the economy as a whole.
In their updates below, experts from across the industry tell IFA Magazine that the combination of stalled growth, a softening labour market and fading confidence has materially strengthened the case for the Bank of England to cut interest rates at the MPC meeting next week in order to deliver some much needed Christmas cheer. While views vary on the outlook for the economy into 2026, many agree that structural weaknesses and persistent inflation pressures are likely to continue to complicate the path ahead.
Experts have commented as follows:
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said; “Monthly GDP is always very volatile so it’s important not to read too much into monthly fluctuations, but it’s certainly plausible that speculation in the lead-up to the budget is responsible for yet another weak GDP report. Either way, the economy is clearly struggling to find any momentum, amid a weak labour market and fiscal concerns. All of which reinforces the case for the Bank of England to cut interest rates next week, and we expect further cuts next year too, eventually taking interest rates back towards 3%.”
Lindsay James, investment strategist at Quilter said: “October’s GDP underscores just how much difficulty the UK economy is going through as the government searches for some sort of growth. Growth is estimated to have fallen by 0.1% in October, mimicking the 0.1% contraction seen in last month’s data and comes despite production output growing as Jaguar Land Rover restarted its operations following the cyberattack-induced shutdown. This figure also misses what were already low expectations and doesn’t bode well for next month’s figure either.
“This fall in growth highlights the continuing trend of the past three months that have seen the already fragile levels of growth evaporate completely and go into reverse, with the three-month figure coming in at a 0.1% fall. Much of this can be put down to the Budget and the deterioration in consumer confidence, spending and business planning. Business and consumers were braced for tax hikes and the endless speculation and leaks have once again put a brake on the UK economy, just as it did last year. Corporate surveys across manufacturing and services indicatethe economy has been slipping closer to stall speed, whilst unemployment has risento 5% as employers reined in hiring amidst the uncertain outlook.
“Moving beyond the Budget and whilst many breathed a sigh of relief that many tax raising measures are still some years away, the impact on growth was negligible. Indeed, the OBR confirmed that no measures introduced will provide growth for the UK economy, and instead it is going to need to be found elsewhere. This is in stark contrast to Europe where growth expectations are being raised at the same time as UK ones are lowered. In effect, the UK economy is going backwards.
“These figures make it increasingly likely the Bank of England will have to lower rates next week when it meets, but with inflation remaining persistently high, the pace at which subsequent cuts can be delivered remains questionable.”
Rob Morgan, Chief Investment Analyst at Charles Stanley cites problems leading up the Budget saying: “Companies and consumers were largely locked into ‘wait and see’ mode.
“Construction and manufacturing were notably weak with businesses experiencing not only significant uncertainty but day-to-day battles with higher employment, escalating energy costs, and waning consumer confidence.
“With the Budget now out of the way there is now at least a bit more clarity around the outlook. Furthermore, while the fiscal event contained little in the way of measures to invigorate growth directly, it should at least have one very important impact – lowering inflation.
“Cutting energy prices, capping fuel duty and freezing rail fares will have a downward effect on CPI. Alongside a pedestrian growth picture that poses little inflationary risk, this should mean a shot in the arm arrives in the form of lower interest rates from the Bank of England.
In the short term, some festive interest rate cheer looks firmly on the cards next week with the BoE poised to slice a further quarter point off base rate. Even before today’s weak growth reading it was viewed as highly likely, but these frankly very poor numbers seal the deal.
“And as inflation subsides throughout next year there’s a strong chance of further cuts that take interest rates deeper into less restrictive territory. This should help prop up household confidence and the all-important property market. Crucially, it stands to stimulate some sorely needed investment activity too and keep the economic wheels grinding in the right direction for the time being.”
Daniela Hathorn, Capital.com said: “The latest data revealed that the UK economy continued to contract in October, with GDP falling by 0.1% for the month and over the three months to October, defying expectations for modest growth. Economists had forecast a 0.1% rise for October alone, so the contraction was a surprise and follows a similar downturn in September. The weakness was broad-based: services output stagnated while both construction and production disappointed, underlining ongoing soft patches across key sectors. Against a backdrop of subdued consumer spending and political uncertainty after the government’s fiscal budget, the data reinforces a picture of stalling economic activity rather than a smooth recovery.
“A second consecutive monthly contraction raises fresh concerns about the strength of the UK recovery, suggesting that underlying demand and business confidence remain weak. For markets and policymakers, such data typically heighten expectations for further Bank of England easing. Market data suggests that they are now more confidently pricing at least a 25-bp rate cut at the next BoE decision, with further easing more likely to come in 2026 given the downside risks to growth and rising unemployment trends flagged by other indicators. The key caveat will be inflation, as it remains stubbornly high even if it is returning to disinflation.
“In financial markets, the reaction has been cautious but dovish. The pound has weakened slightly against major currencies on the news, reflecting increased bets on easier policy ahead, while UK government bond yields have edged lower on safe-haven flows and rate-cut expectations. Equities have been mixed: domestically oriented sectors are under pressure on growth concerns, whereas global exporters are holding up better. Overall, today’s data are reinforcing a narrative of slow growth and policy accommodation but also underscore persistent structural challenges in the UK economy that could dampen sentiment if the slowdown proves more persistent than markets currently expect.”
Derrick Dunne, CEO of YOU Asset Management, comments: “A contraction in October confirms the economy entered the run-up to the Autumn Budget on the back foot. Businesses paused investment, households delayed spending and, as a result, momentum slipped further.
“The measures announced by Rachel Reeves’ on 26 November may strengthen the public finances, but a £26 billion hike in tax rises offers little that will lift economic growth in the near term. It is a risky trade-off at a time when the economy is already losing altitude.
“For the Bank of England, a month of contracted growth strengthens the view that monetary policy is now tighter than the economy can comfortably weather. Today’s reading adds weight to the expectation that its Monetary Policy Committee will cut rates next week in an effort to stop this downturn evolving into something more severe.”
Adding his views, Scott Gardner, investment strategist at J.P. Morgan Personal Investing said:
“Speculation about potential Budget announcements had a numbing effect on consumers and businesses in the lead up to the Chancellor’s speech at the end of November.
“Behind the (GDP) numbers, manufacturing and industrial production bounced back in October after the Jaguar Land Rover factory restarted operations, but this growth was unable to offset a heavy contraction in the previous month when the production lines were shut. The green shoots seen in the recent services PMI data didn’t translate into a boost for this set of GDP figures. Elsewhere, the labour market is clearly softening with payrolls showing a rise in jobless numbers. While wage growth remains resilient, unemployment is an area to watch as we head into 2026.
“Stepping back, economic growth has been inconsistent this year with the UK economy struggling to sustain momentum after a period of impressive growth in the first quarter. Budget speculation and uncertainty around potential tax changes dampened the mood among businesses and consumers, leading some to delay key decisions until the Budget had been delivered. With growth now firmly in the slow lane, there is a clear feeling that the economy this year has taken two steps forward and one step back.”
Agreeing with many of our other commentators above, that these GDP data pave the way for rate cut next week, Jeremy Batstone Carr, European Strategist, Raymond James Investment Services, said: “Today’s data confirms economic activity contracted at the beginning of the fourth quarter, with the economy having ended the third on a downbeat note. Weakness in both services and industrial production have combined to ensure that activity ahead of the Budget remained very subdued.
“With such downbeat pre-Budget headlines, it was unsurprising that, just as last year, household and business confidence began Q4 at a low. Admittedly, consumers may have been waiting for Black Friday sales rather than heading to the shops, with other areas of household spending faring better. Overall, however, service sector activity remained very weak, with the headline data also reflecting the adverse impact of scientific research and a sharp deterioration in the construction sector.
“Industrial activity improved following the third quarter but remains at a low ebb, while weather conditions approximating seasonal norms ensured that utility output, closely associated with climatic conditions, neither added to nor detracted from the overall outcome.
“Looking ahead, rate-setters at the Bank of England will view today’s release, in conjunction with inflation-reducing Budget measures, as no impediment to a pre-Christmas interest rate cut. Although next week’s decision will rest on forthcoming employment, wage and inflation data, there is nothing in today’s release to cause the Committee’s doves to change their position. In fact, several of the hawks whose votes ensured the previous decision was a very close call may feel sufficiently mollified to dial back their wariness.”
