Ask Onix
UK economy shrinks as Budget looms
The United Kingdom's economy unexpectedly shrank by 0.1% in October, according to official data released on Friday, deepening concerns about sluggish growth as the government prepares its Budget.
Key figures and reactions
The Office for National Statistics (ONS) reported the contraction, defying economists' forecasts of 0.1% growth. The economy also declined by 0.1% over the three months leading to October, marking a prolonged slowdown.
Analysts attributed the downturn to a cyber-attack on Jaguar Land Rover, which disrupted car production, and pre-Budget uncertainty that dampened consumer and business spending.
"The surprise contraction adds weight to expectations that the Bank of England will cut interest rates next week," said Ruth Gregory, deputy chief UK economist at Capital Economics.
Capital Economics
Sector breakdown
Production output fell by 0.5% over the three months to October, driven largely by a 17.7% drop in vehicle manufacturing. Jaguar Land Rover's plants halted production in September due to the cyber-attack, with only a partial recovery in October.
The services sector, which accounts for roughly three-quarters of the economy, showed no growth during the same period. Retailers like Card Factory reported weaker sales, citing reduced consumer confidence.
Political fallout
The government has prioritized economic growth, with a Treasury spokesperson stating efforts to lower energy bills and invest in infrastructure would drive recovery.
"We are determined to defy growth forecasts and create good jobs, ensuring better public services," the spokesperson said.
UK Treasury
Shadow Chancellor Sir Mel Stride blamed the contraction on "Labour's economic mismanagement," criticizing recent tax increases and fiscal policies.
Expert analysis
Jack Meaning, UK chief economist at Barclays, described the economy as "unambiguously weak," noting a steady decline in growth throughout 2025. He highlighted delayed spending decisions ahead of the Budget as a contributing factor.
Scott Gardner of JP Morgan Personal Investing echoed this view, stating that Budget speculation had a "numbing effect" on consumer and business activity.
Yael Selfin, chief economist at KPMG UK, suggested that private and public investment could support growth in 2026, though near-term recovery remains uncertain.
Outlook
The Bank of England's upcoming meeting on interest rates will be closely watched, with analysts anticipating a potential cut to stimulate growth. Meanwhile, the government's Budget measures aim to restore confidence amid persistent economic challenges.
