UK economy shrinks 0.3% in October

The UK economy unexpectedly shrank in October, with all three sectors contracting, according to figures released on Wednesday by the Office for National Statistics.

The economy shrank 0.3% following 0.2% growth in September and versus expectations for a flat performance. Over the last quarter, GDP was unchanged.

The data showed that services output fell by 0.2% in October, driven by a decline in information and communication, and was the main contributor to the fall in GDP growth. The sector had grown 0.2% in September.

Meanwhile, production output was down 0.8%, driven by widespread declines in manufacturing, after showing no growth in September. Activity in the construction sector declined 0.5% in October following 0.4% growth the month before.

ONS director of economic statistics, Darren Morgan, said: "Our initial estimates suggest that GDP growth was flat across the last three months.

"Increases in services, led by engineering, film production and education - which recovered from the impact of summer strikes - were offset by falls in both manufacturing and housebuilding.

"October, however, saw contractions across all three main sectors. Services were the biggest driver of the fall with drops in IT, legal firms and film production - which fell back after a couple of strong months.

"These were also compounded by widespread falls in manufacturing and construction, which fell partly due to the poor weather."

Barret Kupelian, chief economist at PwC, said: "The big message coming out of today's data release is that UK economic activity has stagnated and is struggling to achieve escape velocity. In level terms UK GDP is now at the same level as it was in January this year. Tighter monetary policy means the economy is trying to venture ahead but with the handbrake of higher interest rates holding it back.

"In terms of growth rates, GDP contracted on a monthly basis in October by 0.3%, but this does not necessarily mean that we have entered a period of recession - defined as two consecutive quarters (or six months) of negative growth. A closer look at the data, however, suggests that once the short-term volatility is removed from the data, the three-month to three-month GDP growth rate is essentially flat.

"Yesterday’s labour market data showed that employment in the UK economy continued to create jobs over the past three months. However, when combined with today’s release, it suggests that labour productivity is contracting which has been the main driver of Britain’s economic woes for a while."