Monthly real gross domestic product (GDP) is estimated to have fallen by 0.3% in October 2023.

Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, comments: “The UK economy continues to teeter on the edge of recession. Having eked out some marginal growth in the first and second quarters of 2023, and flatlining in the third, the UK economy contracted by 0.3% in October as higher interest rates weighed on activity.

Particularly wet weather during the month was cited as a negative factor, but that doesn’t change the bigger picture of an economy flatling with risk to the downside. This contraction could herald the start of a mild recession, and at the very least it shows the economic resilience shown earlier in the year is wearing off in the face of rising inflation and borrowing costs.

The lagged effect of a blisteringly swift hiking cycle for interest rates is now being felt by more households and businesses. It takes time for interest rate changes to filter through and show up in the GDP numbers. Going forward we can expect the picture to weaken a little further as interest rates remain in restrictive territory to ensure inflationary pressures are vanquished.

Lately, consumer spending has been bolstered by lower fuel prices alongside low unemployment levels and strong wage growth, but these factors may not be enough to stave off the tighter financial conditions and recessionary pressures in coming months. Inflation could linger for longer as wages remain on the sticky side, keeping upward pressure on interest rates, and sluggish demand both domestically and from overseas, notably in Europe, could tread down shoots of growth.

Today’s data will be influential in the Bank of England December’s monetary policy outlook. The Bank will be conscious of mounting evidence the economy is under significant pressure, which means a holding pattern for interest rates for now but growing calls for cuts as inflation subsides and economy activity bumps along the bottom.”



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