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- October witnessed a 0.3% month-on-month decline in UK GDP, marking a challenging commencement for the last quarter of 2023.
- The economy hasn't experienced three consecutive months of growth since Q1 2022, during its rebound from the Omicron-related restrictions in late 2021.
- While acknowledging the influence of exceptionally rainy weather in October, this information contributes to the dovish narrative presented in yesterday's wage data.
Source: Finlogix Calendar
In October, the UK experienced a 0.3% month-on-month decline in GDP, which deviated from the consensus of -0.1%, following two consecutive months of growth. This resulted in a mere 0.3% year-on-year increase in UK output. The dip in October was primarily driven by the service sector, witnessing a 0.2% month-on-month reduction. Notably, information and communications took the lead with a 1.7% month-on-month decrease, followed by professional, scientific, and technical activities (-0.7% month-on-month). Consumer-facing services saw a relatively minor decline of 0.1% month-on-month, and a decrease in strikes within the health service contributed to modest growth of 0.4% month-on-month in that sub-sector.
However, other sectors also experienced declines, with manufacturing output decreasing by 0.9% month-on-month, and construction falling by 0.5% month-on-month. While positive net trade growth supported the UK economy in Q3, October's data revealed that import growth (-2.2% 3m/3m) slightly exceeded export growth. This suggests that the prospect of relying on net trade to rescue the economy in the face of weak domestic demand in Q4 might not be as promising.
The ONS presents several mitigating factors to contextualize the weak economic performance reported. Firstly, October is preliminarily identified as the sixth wettest month on record since 1836, impacting growth negatively in sectors such as construction, retail, pubs, and tourism. Secondly, some local authorities observed part of the half-term holiday in November instead of entirely in October, leading to a reduction in related activities.
Despite these explanations and more positive signals from November surveys, there remains uncertainty about how factors like weather or the timing of the half-term might have influenced certain sectors like IT services. This disappointing start to Q4 follows a frustrating pattern of alternating growth and contraction, with the last consecutive three-month growth period occurring in Q1 2022 during the economic rebound from Omicron-related restrictions.
Although GDP may not be of primary concern for the Bank of England (BoE), as other factors likely take centre stage in discussions, the Monetary Policy Committee (MPC) would have received advanced notice of these data releases, allowing members to assess their impact on views and forecasts.
The October GDP figure aligns with the Bank's subdued forecast, contributing to a growing dovish narrative. The limited data available may hinder the BoE's hawks from countering market expectations of mid-next-year rate cuts.
Despite the disheartening economic scenario, the UK continues to navigate challenges, and recent indicators show slight improvements. While a spectacular performance in 2024 may not be anticipated, the expectation is that, with falling inflation and recovering real incomes, the UK will likely avoid a recession, even if unemployment gradually increases due to adjustments in the labour market tightness.
Another fall back, setting up a weak start to Q4
Source: Finlogix Calendar
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