The latest monthly figures indicate that the UK economy lost momentum at the start of the fourth quarter. Output contracted by 0.1% in October, falling short of expectations and marking the weakest three-month growth rate since late 2023. This decline was driven primarily by a notable pullback in the services sector, which remains central to UK economic performance.
Although some temporary factors likely weighed on activity—such as uncertainty ahead of the November Budget and lingering disruption following September’s automotive production outage—the overall data signal a disappointing beginning to the quarter.
The Bank of England will place greater emphasis on upcoming labour market and inflation releases; however, October’s numbers add weight to the argument for a potential policy rate reduction at the next Monetary Policy Committee (MPC) meeting.
Key Developments
The 0.1% monthly fall in GDP pushed the rolling three-month rate into negative territory. Services output declined 0.3%, with wholesale and retail activity both registering losses. Consumer-facing services were only marginally lower, though still soft overall.
Manufacturing showed limited recovery after the significant auto-sector shutdown in September. Output rose 0.5%, with car production rebounding strongly but not yet fully reversing the prior month’s steep drop. There remains space for further improvements as the quarter progresses.
Construction activity slipped again, falling 0.6% in October, and its three-month growth rate also turned negative. Across both services and construction, public-sector driven activity—especially in health, social care, and public housing projects—continued to provide a meaningful offset to weakness in private-sector output.
The UK’s trade balance deteriorated further. The goods deficit widened to its largest level since early 2022, and export volumes declined more sharply than imports over the past three months. Volatility in automotive trade flows may influence this picture in the short term, but the current mix implies that net trade is likely to weigh on fourth-quarter growth.
Broader Context and Outlook
Economic activity during October reflected a “pause” across many industries ahead of the Autumn Budget. Surveys had already pointed to subdued momentum, and some retail weakness may have stemmed from consumers delaying purchases ahead of November discounting.
Despite a lacklustre start to Q4, there is precedent for a pick-up in activity early in the new year. The UK has experienced a recurrent pattern of stronger growth in the first half of the year followed by softer performance later on. Business sentiment also suggests that investment, hiring, and housing decisions were postponed while firms awaited fiscal policy direction.
December survey data—including PMIs and consumer confidence—will offer insight into whether households and businesses are beginning to re-engage following the Budget announcement.
For monetary policy, GDP alone is unlikely to determine the Bank of England’s next move. Nevertheless, October’s softness reinforces concerns about subdued demand. The upcoming labour market release on 16 December and inflation figures on 17 December will likely be decisive. While the case for a rate cut is strengthening, the final decision may remain finely balanced.