Recessions fears return for UK as economy shrinks in October

(Alliance News) - "Dismal" figures for the UK economy released on Wednesday reignited fears of a recession, but also brought forward expectations for interest cuts by the Bank of England.

The UK economy shrank by more than expected in October, according to figures from the Office for National Statistics.

Gross domestic product fell by 0.3% in October from September, having risen by 0.2% in September from August. This was much worse than expected. According to FXStreet-cited market consensus, analysts were expecting GDP to shrink by just 0.1% in October.

In the three months to October, the UK economy was flat compared to the immediately previous three-month period, though 0.7% larger compared to a year before.

"Some of the factors responsible for the dismal economic performance in October won't be repeated. Screen writers and actors have ended their walkout, which means action can resume on sets that had been dark. Consultants have reached a deal with the government, which could mean an end to at least some of the disruption that's crippled the NHS. And people are finally getting to a checkout and finding their weekly shop has only gone up by a few pennies, rather than the pounds they've come to expect," said AJ Bell's Dannie Hewson.

"But even if the UK does continue to dodge recession, real growth is likely to prove elusive for at least the next year."

The implications of the GDP figures for interest rates also were being quickly calculated on Wednesday.

"With the Bank of England expecting to leave interest rates unchanged on Thursday, this is shaping up to be a flatline festive period. GDP has gone nowhere over a three-month period, as a bleak October offset some more positive numbers from the end of the summer," said Nicholas Hyett, investment analyst at Wealth Club.

"The question now is when the bank starts cutting rates. Leave it too long and the cure could yet prove worse than the disease...Who would want to be a central banker."

AJ Bell's Hewson thinks the worse-than-expected economic decline "may prompt some concern given the lagged impact of interest rate hikes mean the full pain is not yet being felt by individuals or businesses".

Hewson added: "So far, the UK has managed to avoid recession but many more releases like today's might put its ability to keep its head above water under question."

The BoE will announce its latest interest rate decision on Thursday at 1200 GMT, followed immediately by the European Central Bank. The US Federal Reserve announces its own policy decision on Wednesday at 1900 GMT.

By Sophie Rose, Alliance News senior reporter

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