Another headache for Labour: UK economy shrinks for second month in a row
It’s a bad day to be Britain’s chancellor Rachel Reeves, Prime Minister Keir Starmer, or any Labour politician for that matter as data released today shows the UK economy shrunk 0.1 per cent in October, marking two consecutive months of decline.
Economists had anticipated a stronger showing – 0.1 per cent growth – from the UK economy in October, yet figures from Office for National Statistics (ONS) revealed stagnation and slight declines across numerous sectors. While the service sector stalled, production output fell sharply by 0.6 per cent, followed by construction at 0.4 per cent.
Should November yield similar results, Britain will have experienced an entire quarter of contraction, sowing doubts that Labour can deliver on promises of growth and raising concerns that Britain may be on the path towards recession.
It’s worth remembering that monthly growth figures are a relatively recent addition to the economic lexicon and can only reveal so much. Long-term growth trends and policy impacts are more clearly established by quarterly or annual projections. Nevertheless, government critics will seize upon the latest figures to suggest that Starmer and Reeves’s “doom and gloom” campaign, launched prior to the budget, left a negative impact on British business.
Reeves acknowledged today’s figures were disappointing, but deflected blame on her Tory predecessors, saying, “it is not possible to turn around ten years of poor economic growth and stagnant living standards in just a few months”. The Chancellor went on to list a number of government investments from energy to housing which will ultimately spur growth in the long-run.
Reeves's optimistic spin is not shared by many businesses across the country whose attitudes have only worsened since the announcement of £40bn in tax rises. Employers attest that the increased burden of national insurance contributions placed upon them by the budget drives up costs and decreases incentives to hire and invest.
Additional pessimism prevails among the public as consumer sentiment remains subdued amid a “continuing uncharitable view of the UK’s economic situation”.
Mere months ago, Starmer was pledging to transform the UK into the fastest-growing economy in the G7. Now, outpaced by the US and Canada, the PM appears to have pared back his ambition, avoiding repeating his lofty G7 promise in recent weeks.
Reeves says the UK’s economy can hardly be expected to radically rebound in just a few months following years of malaise. Even so, it was recovering pretty strongly in the first half of the year - 0.7% in the first quarter and 0.6% in the second quarterly. There was a potential scenario in which Labour and the country benefited from a wave of optimism in the second half of the year under a new government.
That didn’t happen and the government pushed a downbeat line that does not seem to have helped confidence. Far from invigorating the British public with the prospect of change, it seems that Labour has depressed people after a sweeping victory, with inevitable consequences for growth.
Josh Schlicht
Reaction Reporter
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