The surprise figures mean the UK economy has now contracted for two successive quarters—the technical definition of a recession. Specifically, it shrank by 0.1% in October. This drop is likely a shock to many economists who were expecting a small positive increase of 0.1%. The surprise drop is a worrisome sign of all that’s gone wrong since the pandemic. The economy has grown in just one of the past seven months.
In the three months to October, the economic picture has deteriorated, with production output falling by 0.5%. This drop was largely driven by a shocking 17.7% drop in vehicle manufacturing in that same period. After standing at 5.6% in March, the services sector dropped to 3.4%, exhibiting no sign of growth and dragging the total back into stagnation.
Even with these disappointments, there was a little bit of good news buried in the October data. It looks like the resumption of vehicle manufacturing was a major factor accounting for the 1.1% boost to overall production output for the month. This wasn’t enough to outweigh the three-month contraction overall.
Indeed, Ruth Gregory, deputy chief UK economist at Capital Economics described the importance of this moment.
“It’s striking that the economy has only grown in one of the past seven months.” – Ruth Gregory
This absence of sustained growth prompts questions about the robustness of the UK economy. So says Jack Meaning, the UK chief economist at Barclays Bank. His message is an especially timely one. For one, he thinks folks were overly hopeful about a vehicle manufacturing comeback.
“Ultimately part of the story today is that we didn’t see as much of a bounce-back of that Jaguar Land Rover closure as we had expected,” – Jack Meaning
Today the ONS reported a drop in manufacturing output over the three months to October. This decrease is another factor that complicates the economic picture. Liz McKeown, ONS director of economic statistics, said that car manufacturing was still struggling.
“Within production, there was continued weakness in car manufacturing, with the industry only making a slight recovery in October from the substantial fall in output seen in the previous month.” – Liz McKeown
The subsequent slowdown in services growth for the next four years has sent economists and policymakers into a frenzy. Fewer and fuguer Later this horrible trend was explained by Jack Meaning at the always excellent CityLab.
“It’s continuing the story we’ve seen more or less all the way through this year of growth decelerating from relatively strong numbers at the start to much weaker numbers now, and actually outright contraction.” – Jack Meaning
This economic contraction comes on the heels of several government initiatives to spur economic growth and job creation. A spokesperson from the Treasury said they’re focused on continuing to prove pessimistic projections wrong.
“We are determined to defy the forecasts on growth and create good jobs, so everyone is better off, while also helping us invest in better public services.” – Treasury spokesperson
The stagnation has bred political controversy. Both Porridge Stride’s shots across the bows were aimed at Labour’s Rachel Reeves, with unrelated fire on tax policies and overall public finances. He claimed that what she was saying was deceptive.
“For months, Rachel Reeves has misled the British public. She said she wouldn’t raise taxes on working people – she broke that promise again.” – Sir Mel Stride
As the UK economy adjusts to these macroeconomic shocks, analysts will be watching closely for signs of reversal in the trend separating manufacturing and services. The data from October further underscores fragility in these vital sectors of our economy and casts doubt on the potential for sustained growth moving forward.