‘Tough Road Ahead’ for UK Economy Despite October Rebound, Chancellor Warns

Chancellor of the Exchequer Jeremy Hunt, leaves Downing Street following the first Cabinet meeting with Rishi Sunak as prime minister, in London on Oct. 26, 2022. Victoria Jones/PA

The UK economy still faces a “tough road ahead” despite a rebound in growth in October, Chancellor of the Exchequer Jeremy Hunt has warned.

According to the latest data from the Office of National Statistics (ONS), monthly real GDP is estimated to have grown by 0.5 percent in October, following a fall of 0.6 percent in September.

But experts said the recovery was a “false dawn” as the September figure was affected by the additional bank holiday for the state funeral of Queen Elizabeth II.

The UK is still on track for a likely recession, as GDP for the three months to October dropped by 0.3 percent from the previous three months.

ONS Director of Economic Statistics Darren Morgan said, “The economy bounced back in October, recovering from the impact of the additional bank holiday for the state funeral.”

“However, over the last three months as a whole the economy shrank, with falls seen across services and manufacturing,” he added.

‘Lagging Behind’

Commenting on the latest data, Hunt said the UK economy continues to suffer from the impact of COVID-19 pandemic and Russian President Vladimir Putin’s invasion of Ukraine.

He said: “High inflation, exacerbated by Putin’s illegal war, is slowing growth across the world, with the IMF [International Monetary Fund] predicting a third of the world economy will be in recession this year or next.

“While today’s figures show some growth, I want to be honest that there is a tough road ahead. Like the rest of Europe, we are not immune from the aftershocks of COVID-19, Putin’s war, and high global gas prices.”

Hunt said the government’s plan has “restored economic stability” and will “help drive down inflation next year” and “lay the foundations for long-term growth through continued record investment in new infrastructure, science, and innovation.”

Labour's shadow chancellor of the Exchequer Rachel Reeves talks to business owners and members of the public during a visit to a green grocers in Hoole high street, Chester, United Kingdom, on Nov. 28, 2022. Christopher Furlong/Getty Images

But the main opposition Labour Party blamed the Conservative government for leaving the UK economy “lagging behind” other countries.

Labour’s shadow chancellor Rachel Reeves said: “Today’s numbers underline the failure of this Tory government to grow our economy, leaving us lagging behind on the global stage.

“These are challenging economic times, but there is a choice. We can continue down the road of managed decline, falling behind our competitors, or we can draw on bold thinking to propel us forward.”

She said a Labour government will make the economy stronger and get it growing, with its “Green Prosperity Plan” and “an active partnership with business.”

‘False Dawn’

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said October’s rebound was a “false dawn for the economy.”

He said: “The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup.”

Thiru said he expects the Bank of England, the UK’s central bank, will raise the interest rate from 3 percent to 3.5 percent later this week.

But he warned that “tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

Samuel Tombs, chief economist at Pantheon Macroeconomics, is predicting the UK will officially enter a recession, as defined by two or more quarters in a row of falling output, by the end of the year.

GDP already shrank in the third quarter of 2022, with a 0.2 percent contraction, and Tombs is predicting another 0.2 percent drop between October and December.

He said: “The government looks set to pull back energy price support substantially next year, while higher interest rates will squeeze disposable incomes and spur households and businesses to pay off debt.

“As a result, we continue to expect a peak-to-trough fall in the quarterly measure of GDP of about 2 percent, and doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G-7 economies.”

According to the ONS, the services sector grew by 0.6 percent in October, after falling by 0.8 percent in September. The largest contribution to the growth came from wholesale and retail trade and repair of motor vehicles and motorcycles.

Output in consumer-facing services grew by 1.2 percent in October, after falls of 1.7 percent in September and 1.6 in August.

Production remained broadly flat in October, after growth of 0.2 percent in September. The construction sector grew by 0.8 percent in October. This is its fourth consecutive increase after growths of 0.4 percent in September, 0.6 percent in August, and 0.2 percent in July 2022.

Trade data published separately by the ONS on Monday also showed that the UK’s trade deficit widened by £100 million ($123 million) to £23.9 billion ($29.4 billion) in the three months to October 2022, with the value of goods exported in October down by 2.2 percent and goods imported falling by 2.6 percent.

PA Media contributed to this report.