Britain’s economy returned to growth in October as activity bounced back from the impact of the additional bank holiday for the Queen’s funeral, however a long recession is still expected.
The Office for National Statistics said gross domestic product (GDP) rose by 0.5% on the month, after a decline of 0.6% in September when many businesses closed their doors during the national mourning period.
Car sales rebounded after a poor month amid a wider recovery in the country’s dominant service sector, while there was strong growth in activity in the health sector amid a rise in GP appointments, A&E attendance and the Covid-19 autumn booster campaign.
Construction continued a strong run, driven up by housebuilding, while manufacturing output grew.
However, GDP shrank by 0.3% in the three months to October, reflecting concerns over the strength of the economy as consumers and businesses tightened their belts amid the highest rates of inflation for 41 years.
The Bank of England said last month the economy was probably already in a recession that could last until the end of 2023, after GDP fell by 0.2% in the three months to September. Despite a recovery in October, a return to contraction in November and December could spell a second consecutive quarter of decline – the technical definition of a recession.
Economists said the October figures did not alter the overall picture of a slowing economy. David Bharier, the head of research at the British Chambers of Commerce, said: “Business confidence has been falling dramatically as firms face into a wall of higher prices and energy bills, increased taxation, and rising borrowing costs.
“Unless the government helps create a stable environment to allow businesses to invest, the UK faces a long-term loss of competitiveness.”
With inflation above 11% during Russia’s war in Ukraine driving up energy costs, the Bank of England is widely expected to further raise interest rates on Thursday for the ninth time in a row. However, the rate-setting monetary policy committee is expected to be split, with a minority of its nine members likely to push for a slower pace of rate increases amid the risk of a lengthy recession.
Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said he expected the economy to shrink by up to 2% in total over the course of the recession. “The government looks set to pull back energy price support substantially next year, while higher interest rates will squeeze disposable incomes and spur households and businesses to pay off debt.
“[I] doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G7 economies.”
Rachel Reeves, the shadow chancellor, said the figures showed Britain was lagging behind on the global stage. “These are challenging economic times but 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,” she said.
Analysts said October’s recovery in consumer spending was likely to be short lived, despite hopes among retailers and hospitality firms that the World Cup in Qatar could help drive up sales during the festive season.
The latest snapshot showed output in consumer-facing services grew by 1.2% on the month, after a fall of 1.7% in September when many retailers temporarily closed for the Queen’s funeral. Alongside a rise in car sales, the ONS said travel agencies and tour operators benefited from a stronger month, while output also grew for sports activities and amusements.
Yael Selfin, the chief economist at KPMG UK, said: “Stretched household incomes could see sustained falls in consumer spending over the coming year, despite households tapping into their savings and increasing borrowing to help maintain their spending during the downturn.”
Jeremy Hunt, the chancellor, said high inflation was slowing economic growth across the world, and the International Monetary Fund had forecast a third of the world economy will be in recession this year or next.
“While today’s figures show some growth, I want to be honest that there is a tough road ahead. Like the rest of Europe, we are not immune from the aftershocks of Covid-19, Putin’s war and high global gas prices,” he said.
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