UK Economy Shrinks in October Amid Production and Construction Falls

The skyline of the financial district is seen as people walk through the Square Mile in London on Jan. 31, 2023. Leon Neal/Getty Images

The UK economy shrank in October, driven by output falls in production and construction and no growth in services, the latest data suggest.

The Friday report by the Office for National Statistics (ONS) showed that GDP contracted 0.1 percent in October, following a 0.1 percent estimated fall in September.

August accounted for growth of 0.2 percent, but followed a period of no growth in both June and July. October figures mean it is the first time the economy has contracted for two consecutive months since March and April 2020, during the onset of the COVID-19 pandemic.

Chancellor Rachel Reeves has called the latest growth figures “disappointing.”

“However, I’m determined to turn the economy around so it works for working people once again. That’s why we are building 1.5 million homes, creating the National Wealth Fund and reforming our pensions market to make Britain better off,” she said on social media platform X.

The contraction in economy was driven by falling output in production and construction. October saw production output drop by 0.6 percent, while construction fell by 0.4 percent.

Mining and quarrying appeared to be the major culprits, driving production down, following the sector decline of 0.5 percent in September.

In construction, four out of the nine sectors saw decreases in October. The main contributor to the monthly decrease was private housing repair and maintenance, which fell by 3.8 percent. Despite the latest fall, construction grew both in September and in three months to October, by 0.1 and 0.4 percent respectively.

The largest proportion of the country’s output and employment—the services sector—recorded no growth in October, after also stalling in September.

The output in this sector is closely watched by the Bank of England because it provides crucial insights into the overall health and trajectory of the UK economy. The bank monitors service sector inflation to assess whether it aligns with its 2 percent inflation target.

Budget Impact

Liz McKeown, the ONS’s director of economic statistics, said that despite falls in some sectors, the economy still grew over the last three months.

“The economy contracted slightly in October, with services showing no growth overall and production and construction both falling. Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms,” she added.

The ONS also reported a wide-ranging response across industries to the policy announcement in the October Budget.

Manufacturers, wholesalers, and retailers among other industries said they were negatively affected by the Budget decisions.

Meanwhile, wholesale, real estate, legal services, and accountants said the Budget had brought forward activity in anticipation of the various announcements.

Recession Watch

The Institute of Economic Affairs economics fellow, Julian Jessop, said on X that the GDP data for October “should put the UK firmly on recession watch.”

The last time the UK economy entered recession was at the end of last year, when GDP contracted for two consecutive quarters.

Responding to the latest ONS data on trade, the head of trade policy at the British Chamber of Commerce, William Bain, said in a statement that the slowdown links in with other economic data showing a dampening of demand.

“Trade data from Germany this morning also shows a 2.8 percent fall in goods exports during October, so the UK is not alone in facing a slowdown.

“Although goods exports in October did not see the volatility of previous months, there was still a 2.6 percent drop in volumes. Goods exports to the EU fared better than exports to the rest of the world,” he said.

Bain urged the government to deliver a “clear plan” to boost export performance in key sectors to drive growth.

Labour’s ambition is to make the UK the fastest-growing economy among the G7 nations. In December, Prime Minister Sir Keir Starmer reaffirmed the government’s commitment to enhancing household disposable income across the UK by the end of the parliamentary term.

The government’s Trade Strategy, due next year, aims to attract investment in high-growth sectors, drive long-term economic growth, and position the UK as a leader in the global market.