(Bloomberg) — The UK was given a moment of respite from the grim economic outlook in October as businesses recovered output lost following the death of Queen Elizabeth II.
Gross domestic product rose 0.5% in October from September, which included an extra public holiday for the queen’s funeral and a period of national mourning. On a quarterly basis, GDP shrank 0.3% in the three months through October compared with the previous three-month period.
The figures will do little to lift the gloom hanging over an economy struggling with an historic cost-of-living crisis and possibly already in a lengthy recession.
“Stretched household incomes could see sustained falls in consumer spending over the coming year,” said Yael Selfin, chief economist at KPMG UK. “The bounce back in retail spending could be short-lived, which would mean another disappointing holiday season.”
The darkening outlook is expected to leave Bank of England policy makers deeply divided this week over how much to raise interest rates to fight inflation, which is at its highest level in 41 years. A half-point increase to 3.5% is expected by investors.
“While today’s figures show some growth, I want to be honest that there is a tough road ahead,” Chancellor of the Exchequer Jeremy Hunt said. “Our plan has restored economic stability and will help drive down inflation next year, but also lay the foundations for long-term growth through continued record investment in new infrastructure, science and innovation.”
The monthly figures brought GDP 0.4% above its level in February 2020, the month before Covid-19 lockdowns started. On a quarterly basis, the economy remains smaller than it was before the pandemic started.
The Labour opposition seized on the quarterly figures to criticize Prime Minister Rishi Sunak’s handling of the economy.
“Today’s numbers underline the failure of this Tory government to grow our economy, leaving us lagging behind on the global stage,” said Rachel Reeves, the Labour lawmaker who speaks on finances. “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.”
What Bloomberg Economics Says …
“The GDP rebound in October won’t be enough to prevent the economy from dodging a recession. A contraction over the fourth quarter looks inevitable, with the wave of strikes across the UK this month potentially amplifying the drop in activity. Still, today’s reading supports our view that the recession is unlikely to be that severe.”
—Ana Andrade, Blooberg Economics. Click for the REACT.
Services, manufacturing and construction all rose in October. Retail, wholesale trades and motor vehicle repair led the increase in services. There was a strong bounce in consumer-facing services like hospitality, which rose 1.2% after two consecutive months of decline.
A surge in coronavirus testing and vaccination boosted health, which made the second-biggest contribution to services. That follows a campaign to give booster shots to vulnerable people.
Travel services, including agencies, tour operators and other reservation services rebounded in October to 7.1% growth, after contracting by 9.7% in September.
“Business confidence has been falling dramatically as firms face into a wall of higher prices and energy bills, increased taxation, and rising borrowing costs,” said David Bharier, Head of Research at the British Chambers of Commerce. “The UK faces a long-term loss of competitiveness.”
The trade deficit excluding precious metals was little changed at around £20 billion. Imports fell as falling gas price cut the value of shipments from countries outside the European Union. Exports also fell marginally.
–With assistance from Joel Rinneby and Mark Evans.
(Updates with tweaks in headline and first two paragraphs.)
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