Closing post
Time to wrap up…
Economists are broadly expecting a cut to UK interest rates next week, after Britain’s economy shrank unexpectedly in October.
The economy contracted, for the second month running, as consumers held back on spending before Rachel Reeves’s budget, and car manufacturing struggled to recover from the cyber-attack on Jaguar Land Rover.
Figures from the Office for National Statistics (ONS) showed gross domestic product fell by 0.1%, after a 0.1% drop in output in September. City economists had predicted a 0.1% rise in October.
After a fourth consecutive month without growth, economists said the latest snapshot would probably cement a Bank of England interest rate cut next week amid fading inflationary pressures, fears over the sluggish outlook, and rising unemployment.
The money markets indicate there is a 90% chance that the Bank will cut rates by a quarter of a percentage point to 3.75% when it announces its latest decision on 18 December.
The service sector, and construction, both shrank in October, while production returned to growth.
A Treasury spokesperson said the government was “determined to defy the forecasts on growth”…
.. while shadow chancellor Sir Mel Stride blamed the government’s ‘mismanagement’ of the economy.
The ONS also reported that the UK’s trade deficit widened in October, due to a drop in exports.
If the Bank of England cuts interest rates next week, from 4% to 3.75%, it would bring borrowing costs down to their lowest level since January 2023.
Interest rates started 2023 at 3.5%, before being hiked to 4% in February 2023 as the Bank battled inflation. They reached 5.25% that August, and stayed there for a year until the cutting cycle began in August 2024.
The EY ITEM Club also expects the Bank of England to cut Bank Rate to 3.75% at its meeting next week.
However, they reckon it will be “another close call”, with a slim 5-4 majority expected in favour of a rate cut.
[Economists believe governor Andrew Bailey is the ‘swing voter’ who could decide the vote, with four of the Bank’s nine policymakers like to vote for a cut again, after being thwarted in November].
Next Wednesday’s inflation data could prove the final hurdle and may still sway the decision in either direction, EY ITEM Club say.
Matt Swannell, chief economic advisor to the EY ITEM Club, explains:
“November’s decision to keep Bank Rate unchanged was a finely balanced vote of 5-4 in favour, reflecting two different opinions amongst Committee members. These divisions will likely remain at the December meeting, but this time, the EY ITEM Club expects a finely balanced vote in favour of another cut, with inflation likely having fallen back in the last few months.”
Billionaire John Caudwell has claimed the “business unfriendly” nature of the Government’s first Budget, last year, was having an impact on growth
Caudwell, who switched allegiance from the Conservatives to back Labour before last year’s election, told BBC Radio 4’s World At One:
“It was wealthy people unfriendly, it’s driven a lot of wealthy people out of the UK.
“Now on top of that, we got the Employment Rights Bill coming in, which of course, we knew about in the manifesto, but I guess there was always a hope that it may not transpire, and that is going to make Britain less competitive.”
Caudwell, who founded the Phones 4u chain, doesn’t seem to have given up on Labour yet, saying:
“I still support Labour because they’re in power, they’re going to stay in power, and we desperately need them to succeed, but they really need to change the tune of what they’re doing.”
The UK’s FTSE 100 share index has slipped back from this morning’s four-week high, and is now slightly in the red.
UK-focused companies are among the largest fallers, including hotel group Whitbread (-2%), supermarkets Tesco (-1.4%) and Sainsbury’s (-1.1%) and retailer Next (-1.2%).
The pound has slipped very slightly lower in the currency markets today, as traders digest the surprise fall in UK GDP in October.
Sterling has lost a tenth of a cent against the US dollar to $1.3376, but remains flat against the euro.
David Morrison, senior market analyst at Trade Nation, says:
UK GDP went negative again last month. This was yet another disappointing economic number for the UK, and one which now puts investors on recession watch. Sterling fell sharply on the news, before recovering around half of its losses. The poor data strengthens the probability of a rate cut from the Bank of England next week, even as high inflation remains a concern.
Back in the financial markets, shares in Swiss bank UBS have hit a 17-year high, as investors grow confident that Swiss lawmakers will reach a compromise on proposals to impose tougher capital rules on the bank.
UBS’s shares are up 3.4% today at CHF34.63, the highest since early 2008.
The Financial Times explains why:
The stock has been sensitive for months to debate over the Swiss government’s June 2025 banking reform package, which could require UBS to hold up to $26bn in extra capital.
The bank has been particularly opposed to the proposal to force it to back its foreign subsidiaries with an extra $23bn in capital.
Investor sentiment has been boosted by local press reports of a compromise being proposed by multiple political parties. The multi-party proposal suggests broader political momentum behind a more moderate overhaul of the capital regime.
Chart: UK GDP over the last two years
If the Bank of England is indeed about to cut interest rates several times, it could be a good time to be buying UK government debt.
Robert Timper, chief fixed income strategist at BCA Research, believes UK gilts will be the best-performing bond market in 2026, with the Bank of England most likely to surprise dovishly compared to other central banks, predicting:
“UK gilts will go from second to the best-performing bond market, backed by a dovish BoE and reduced fiscal concerns.”
Morgan Stanley economist Bruna Skarica predicts UK interest rates will be cut next week, and again at the Bank of England’s next meeting in early February.
Here’s why:
GDP surprised to the downside in October, coming in below our-sub consensus forecast. Auto production bounced back, but auto sales reversed their September surge.
White-collar services sectors have lost steam into year-end. Construction activity is weak, suggesting rather clearly that rates are still very restrictive. The UK economy seems to need some support. The BoE is running out of reasons not to provide it. We expect cuts in December and February.
Updated
XTB: UK economy faces stagflation risks
The UK economy faces stagflation risks, warns Kathleen Brooks, research director at XTB, following October’s economic contraction and the drop in UK exports.
Brooks says the disappointing UK GDP reading for October was “the dominant theme for markets this morning”.
Growth declined by 0.1%, instead of rising by 0.1%, as economists had forecast. This means that the UK economy has not grown since June, and there could be worse to come. The ONS, who compiled the data, said that services showed no growth, while construction fell by 0.3% and production also slipped by 0.5%.
Meanwhile, the total trade deficit widened by £4bn to £6.7bn in the three months to October. Trade in services was in a surplus and has been mostly stable and in a mild uptrend this year, while the trade in goods has seen a widening of the deficit in recent months.
It is important to read the GDP data (see 7.01am onwards) alongside the trade data (see 10.56am).
Together, they suggest that the UK economy buys more while it produces less. If the Labour government wants to boost growth it needs to break this pattern. Without a doubt, exceptionally high energy prices compared to our peers is hurting how much we can produce and manufacture in the UK. Without significantly changing how the UK charges for energy, the UK economy is doomed to a subdued economic performance for the long term.
The UK economy is now facing “the spectre of stagflation, the worst of all worlds”, she concludes.
Due to this, next week’s CPI data will be crucial for the outlook for UK rates and could cause significant volatility in the pound and the Gilt market.
The announcement that Google Deep Mind will build its materials science lab in the UK (see yesterday’s blog) is undoubtedly good news, but it is not enough to deflect from the damage that the current economic policy direction is taking us in.
UK trade deficit widens as exports drop
Britain’s trade deficit has widened over the last quarter, due to a worrying drop in shipments to the rest of the world.
The UK’s total goods and services trade deficit widened by £4.0bn to £6.7bn in the three months to October, the Office for National Statistics reports.
That’s because total imports of goods rose by £1bn in the quarter, while goods exports decreased by £3bn – due to a £2bn drop in exports to the EU and a £1bn drop to the rest of the world.
Overall, the UK ran a £60.5bn deficit in goods in the August-October period, partly balanced by a services surplus of £53.8bn.
FTSE 100 hits four-week high
The UK stock market has shrugged off this morning’s weak GDP report, with the main indices up slightly.
The blue-chip FTSE 100 share index has hit a four-week higih this morning, and is currently up 20 points, or 0.2%, to 9723 points this morning.
Precious metals producers are the top risers; Fresnillo are up 4.6% and Endeavour Minerals are 3.1% higher, tracking a rise in the gold price this morning.
Joshua Mahony, chief market analyst at Scope Markets, explains:
European markets are on the rise in early trade today, feeding off the back of the record highs set in the S&P 500 yesterday. In the UK, the latest GDP data highlighted the detrimental effect of Rachel Reeves constant pre-budget flip-flopping, with the country shrinking by -0.1% in the three-months to October.
Notably, for that period we saw services sector activity fall by 0.3%, while construction shrank by 0.6%. Ultimately when looking at the FTSE 100, the strength seen this morning comes via two distinct areas; financials and miners. Crucially, the heavy commodity component of the index means that we typically see the index benefit from periods of strength like that seen across the likes of copper, gold, silver, and palladium.
Deutsche Bank predict two UK interest rate cuts in 2026, as well as a cut next week.
They say:
We stick to our call for two further rate cuts in 2026 - one in March, and another in June, taking Bank Rate to a terminal rate of 3.25% - broadly consistent with our current estimates of neutral.
We see risks skewed to a slightly slower but deeper easing cycle in 2026. That said, as we recently noted, the conditions for a more rapid easing cycle are emerging - though not our base case.
UK public inflation expectations dip lower
The British public’s expectations for inflation over the next year have fallen, which could help nudge the Bank of England towards cutting interest rates next week.
The public’s median expectation for the rate of inflation in the year ahead fell to 3.5% from 3.6% in August, according to the Bank’s quarterly inflation attitudes survey.
For inflation in the longer term (eg in five years’ time), expectations fell to 3.7% from 3.8%.
While the Bank should welcome the drop, they might note that expectations are still well above their target of 2%.
The net satisfaction rate in the Bank’s own performance fell to -1%, down from 2% in August.
November’s GDP report could be “worse” than October’s, warns economist Simon French of Panmure Liberum (who agrees that a rate cut next week is highly likely).
Very soft UK GDP numbers for October -0.1% 3m/3m. Likely to be worse for November given the pre-Budget caution on display across the consumer sector. Nails on a rate cut for next week and raises the chances of mutiple cuts in H1 26. pic.twitter.com/XT64dGwVQS
— Simon French (@Frencheconomics) December 12, 2025
NIESR: No growth since June
Today’s disappointing GDP figures show that the UK economy has seen no growth since June, points out the National Institute of Economic and Social Research.
NIESR associate economist Fergus Jimenez-England warns it is not yet clear whether last month’s budget will lead to stronger growth, saying:
This is especially concerning given that October’s GDP was lifted by a one-off rebound in manufacturing activity following the JLR cyber-attack.
Contractions in both services and construction indicate broad-based weakness, potentially reflecting uncertainty in the run-up to the Budget.
Recent survey data points to continued sluggishness for the remainder of the quarter, though with the Budget now behind us, there is scope for improvement in December.
Looking ahead, the Autumn Budget’s doubling of fiscal headroom should help reduce uncertainty over the coming year. Whether that will translate into stronger economic activity remains to be seen.”
Updated
Nationwide fined £44m for financial crime control failings
Oof! Britain’s financial regulator has hit lender Nationwide with a £44m fine for operating “inadequate anti-financial crime systems and controls” from October 2016 to July 2021.
The Financial Conduct Authority says Nationwide had ineffective systems for keeping up-to-date due diligence and risk assessments for all its personal current account customers and for monitoring their transactions.
It adds that Nationwide was also aware that some of those customers were using their personal accounts for business activity, in breach of its terms. As Nationwide didn’t, then, offer business current accounts it didn’t have the correct processes to manage potential financial crime risks.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said:
‘Nationwide failed to get a proper grip of the financial crime risks lurking within its customer base. It took too long to address its flawed systems and weak controls, meaning red flags were missed with serious consequences.
These failings have cost the taxpayer £800,000 in Covid fraud, according to the FCA who say:
In one serious case, Nationwide missed opportunities to identify a customer using personal current accounts to receive fraudulent Covid furlough payments. The customer received 24 payments totalling £27.3m over 13 months, with £26.01m of this deposited over 8 days.
His Majesty’s Revenue & Customs (HMRC) recovered £26.5m, but approximately £800,000 remains unrecovered.
Updated
Goldman Sachs expects Bank policymakers to vote 6-3 to cut rates
Goldman Sachs predict the Bank of England will cut interest rates next week too.
In a note published yesterday, Goldman economists James Moberly suggests the Bank’s monetary policy committee could split 6-3 in favour of cutting borrowing costs, a month after voting 5-4 to leave rates on hold.
In this scenario, governor Andrew Bailey and deputy governor Clare Lombardelli would leave the ‘no change’ gang and join the cutters.
That would leave chief economist Huw Pill, and external members Megan Greene and Catherine Mann, voting to leave rates on hold due to concerns about inflation.
Moberly explains:
Since the last MPC meeting, the data have come in on the softer side, with a range of indicators pointing to further labour market weakening.
Although the measures introduced at the Budget are likely to generate a small near-term growth boost, they should notably lower inflation next year. As such, the Committee is very likely to cut Bank Rate by 25bp at next week’s (December 18) meeting. We expect a 6-3 vote split – with Pill, Greene, and Mann dissenting in favour of a hold – although the number of dissents (including Lombardelli’s vote) will likely depend on next week’s data.
That data will include the latest unemployment and wage reports, on Tuesday morning.
Economist Douglas McWilliams is concerned that the UK’s tech sector stumbled in October, with “computer programming, consultancy and related activities” shrinking by 3.6%.
Weak GDP data from is before the Budget, though the Chancellor/Treasury led discussion of tax rises pre Budget won't have helped. Worst news is that the only previously booming sector, tech, has fallen back sharply with computer programming etc down 3.6% on the month.
— Douglas McWilliams (@DMcWilliams_UK) December 12, 2025
Deutsche Bank: There's a risk UK economy shrinks in Q4
There is a danger that the UK economy shrinks in the final quarter of the year, says Sanjay Raja, chief UK economist at Deutsche Bank.
That would put the UK on the brink of recession (two quarterly contractions in a row).
Raja warns that the road to the new year will be bumpy, saying:
In fact, after today’s data, our nowcasts for growth in the fourth quarter are now running even lower at 0% q/q (our official forecast is for a 0.1% q/q expansion). More worryingly, the skew around our nowcasts lean more negative than positive. And for the first time this year, we see some meaningful risk of a marginal quarterly contraction in real GDP.
If realised this would mark the first quarterly contraction in real GDP since Q4-23. Indeed, Budget uncertainty combined with weak hiring and rising unemployment fear will likely see spending and investment more subdued to end the year.
The good news is that Deutsche Bank expect the UK economy to shake off much of the uncertainty heading into the new year; they forecast growth of 0.5% in January-March 2026, meaning recession would be avoided.
Berenberg: deteriorating fundamentals are to blame, not the budget
Berenberg economist Andrew Wishart reckons deteriorating economic fundamentals, rather than budget uncertainty, are responsible for the contraction in GDP in October.
Wishart explains that this could prompt an interest rate cut next week:
The UK economy has faltered more dramatically than we expected. The 0.1% mom fall in monthly GDP in October (consensus forecast +0.1% mom) extends the cumulative decline in output since June to 0.4%.
The more recent survey data suggests that the malaise has continued since. We suspect that deteriorating fundamentals rather than a Budget-related setback in confidence are to blame, so a recovery seems unlikely in the near term.
This should help ensure that inflation drops swiftly in 2026, allowing the Bank of England to cut bank rate from 4.00% today to 3.00% by next July. The first of these reductions will likely come next Thursday 18 December. Lower BoE rates should then pave the way for a rebound in growth over the course of 2026.
Card Factory blames profit warning on weak consumers
Christmas should be a bumper time for greetings cards sellers, but Card Factory has startled the City with a profits warning this morning.
Card Factory told shareholders that sales have been below expectations, saying:
Over recent months, the pressures facing the UK consumer have been well publicised. It is an inescapable fact that these pressures have impacted consumer confidence and shopping behaviour, contributing to soft high street footfall.
Those conditions have persisted as we moved into our most important trading period, leading to a UK store sales performance which is lower than our previous expectations.
Card Factory now expects to post pre-tax profits of between £55m and £60m this financial year, down from a previous forecast of £70m.
Its shares have plunged by 26% in early trading.
Over in France, inflation remained enviably low last month.
Consumer prices dropped by 0.2% during November, helping to keep the French annual CPI rate at 0.9%, matching October’s reading.
Prices of French services (-0.5%), and manufactured goods (-0.1%) both fell in November, while energy prices rose (+1.3%).
Stride: Labour’s 'economic mismanagement' to blame
Shadow chancellor Sir Mel Stride has blamed the government’s ‘mismanagement’ of the economy for the unexpected fall in GDP in October, and in the August-October quarter.
Stride says:
“This morning’s news that the economy unexpectedly shrank in the three months to October is extremely concerning but it’s as a direct result of Labour’s economic mismanagement.
“Rachel Reeves promised growth but Labour has no plan for the economy – just their own survival, that’s why Reeves presented a benefits budget that rewards welfare, not work.
“For months, Rachel Reeves has misled the British public. She said she wouldn’t raise taxes on working people – she broke that promise again. She insisted there was a black hole in the public finances – but there wasn’t.”
December interest rate cut is 'nailed on' after UK GDP shrank in October
Economists are convinced that the Bank of England will respond to the UK’s weak economic performance by cutting interest rates next week.
The Bank’s monetary policy committee will make its final decision of the year on Thursday 18th December, and a rate cut to 3.75% appears highly likely now that the economy shrunk by 0.1% in October.
Ruth Gregory, deputy chief UK economist at Capital Economics, says:
The surprise 0.1% m/m contraction in the economy in October was especially disappointing given the increase in manufacturing output, which rebounded after September’s cyber-attack induced hit, and is a further reason to expect the Bank of England to cut interest rates next Thursday.
Suren Thiru, economics director at the ICAEW, says a pre-Christmas interest rate cut is “nailed on”:
“These figures confirm an off-colour October for the economy, with pre-Budget worries paralysing activity across key sectors, despite a boost to manufacturing from Jaguar Land Rover’s return to production.
“This dismal outturn may have been followed by a similarly turbulent November with the damage to business and consumer confidence from the frenzied speculation ahead of the Budget likely to have frozen wider economic activity.
“The aftereffects from the Budget may mean that the UK’s economic prospects are poorer over the near term, with the growing tax burden and a weakening jobs market likely to keep growth notably lower than the OBR expects.
“With these downbeat figures likely to further fuel fears among rate-setters over the health of the UK economy, a December policy loosening looks nailed on, particularly given the likely deflationary impact of the Budget.”
TUC general secretary Paul Nowak urges the Bank of England to help families and businesses with a rate cut:
“Bringing our economy back on track after 14 years of Tory chaos was never going to be straightforward. A volatile international context is not making this job any easier.
“After years of falling living standards, consumer spending is still very weak.
“The Government acted to boost household incomes at the Budget – it raised minimum wage, benefitting millions across the country, cut child poverty and funded energy payments to support living standards.
“The Bank of England should now recognise the impact that the living standards crisis has had on families’ and businesses’ finances and spending - and must deliver further cuts in interest rates next week”
According to my LSEG screen, an interest rate cut is an 89% chance. Last month, the Bank split 5-4 when they voted to leave rates on hold, so it only needs one voter (likely governor Andrew Bailey) to switch sides….
Updated
Treasury: We're determined to defy the forecasts
A Treasury spokesperson has responded to the news that the economy shrank by 0.1% in October, saying:
“We are determined to defy the forecasts on growth* and create good jobs, so everyone is better off, while also helping us invest in better public services.
“That is why the Chancellor is taking £150 off energy bills, protecting record investment in our infrastructure, and we are backing major planning reforms, the expansion of Heathrow and Gatwick airports, and the construction of Sizewell C.”
(* – The City had expected growth of 0.1% in October, so that’s one forecast defied already….)
Budget uncertainty, higher taxes on businesses, weak consumer confidence and Donald Trump’s trade wars all caused the UK economy to contract in October, says Raj Badiani, economics director at S&P Global Market Intelligence.
“Poor real GDP developments for the fourth consecutive month in October shows the impact of poor domestic demand conditions and higher payroll taxes on businesses, driven by fiscal policy changes and higher US tariffs. This has led to significant pressure on UK firms to delay recruitment and investment plans. Meanwhile, consumer confidence is stuck in a rut, hitting discretionary spending alongside triggering unusually high household saving rates.
“The latest leading data suggests continued growth struggles in the next few months, partly reflecting weakened business and consumer confidence due to the Autumn Budget. Growth should improve moderately from mid-2026, underpinned by the government’s significant spending plans and protected by the backloading of the Budget’s main fiscal adjustment measures until 2028. In addition, monetary policy should be less restrictive, with the Bank of England expected to lower the Bank Rate both next week and in February, due to disappointing labour market and GDP data.”
Slump in housebuilding in October
The 0.6% drop in construction output in October shows that the government is struggling to hit its goal of building lots more houses.
The ONS reports that this decrease came from decreases in both new work and repair and maintenance, which decreased by 0.7% and 0.6%, respectively.
At the sector level, the main contributor to the monthly decrease was private new housing, which fell by 2.4%.
The building boom remains devoid of any spark. Construction output was estimated by the @ONS to have decreased by 0.3% in the three months to October 2025 and by 0.6% on September’s efforts. The biggest losers over the month remained private new housing, which fell by 2.4% but… pic.twitter.com/B5vRzrURzm
— Emma Fildes (@emmafildes) December 12, 2025
Updated
Britain’s services sector failed to grow in the three months to October, which is a blow as it makes up so much of the economy.
The ONS reports that output fell in seven of the 14 subsectors that make up the services sector, with the largest negative contributions in:
professional, scientific and technical activities (down 1.6%), caused by falls in scientific research and development (down 6.2%) and architectural and engineering activities; technical testing and analysis (down 3.0%)
other service activities (down 2.6%), caused by other personal service activities (down 4.6%)
information and communication (down 0.4%)
Updated
ONS: businesses and customers were waiting for the budget
The ONS identifies pre-budget uncertainty as a factor hitting the economy in October.
In its GDP report, it says:
Businesses across the production, construction and services sectors reported that they, or their customers, were waiting for the outcome of the Autumn Budget 2025 announcement on 26 November 2025.
These comments came from a range of industries, but were mainly from manufacturers, construction companies, wholesalers, computer programmers, real estate firms, and employment agencies.
Economy grew just 1.1% over last year
Today’s GDP report also shows the economy only grew by 1.1% over the last year – a weak performance.
The ONS says:
GDP is estimated to have grown by 1.1% in the three months to October 2025, compared with the same three months a year ago. Over this period services grew by 1.5% and construction grew by 1.1%, whereas production fell by 1.3%.
GDP is estimated to be 1.1% higher in October 2025, compared with October 2024.
ONS: Why economy contracted
Here’s ONS Director of Economic Statistics Liz McKeown explaining why the economy shrank in October, and over the last three months:
“The economy contracted slightly in the latest three months, as production fell again and services growth stalled.
“Within production, there was continued weakness in car manufacturing, with the industry only making a slight recovery in October from the substantial fall in output seen in the previous month.
“Overall services showed no growth in the latest three months, continuing the recent trend of slowing in this sector. There were falls in wholesale and scientific research, offset by growth in rental and leasing and retail.”
Updated
Worst three-month GDP growth since December 2023
The UK economy also shrank by 0.1% in the three months to October (a better measure than the monthly data).
The ONS says this is the first three monthly fall in real GDP since December 2023.
Services and construction shrank, but production grew
The UK economy shrank in October despite a small boost from the reopening of Jaguar Land Rover’s factories after a cyber attack.
The ONS reports that the services sector fell by 0.3% and construction fell by 0.6% in October.
That more than cancelled out a 1.1% rise in production activity.
Updated
UK economy SHRANK in October
Newsflash: Britain’s economy shrank unexpectedly in October, as the budget cast a shadow of uncertainty over the country.
UK GDP fell by 0.1% month-on-month in October, the Office for National Statistics reports, rather weaker than City expectations of a 0.1% increase.
That follows the 0.1% contraction in September, and no growth in August, and means the UK’s economic malaise continued in October.
Updated
Copper price hits record highs
The copper price, a gauge of global growth prospects, has just hit an alltime high.
The benchmark three-month copper price on the London metal exchance has hit a record high of $11,952 per metric tonnne.
And in Shanghai, copper futures have hit a new record high of 94,570 yuan per metric ton.
“Doctor Copper” is viewed as a useful measure of the overall health of the economy, as demand rises when firms are investing in new construction, manufacturing, and electrical equipment.
CBI lifts 2026 growth forcast after budget
The Confederation of British Industry has bumped up its economic growth forecast for next year, Reuters reports, citing a temporary boost to government spending following the budget.
It also warned, though, that deep-rooted problems remain within the economy.
The business association predicted the economy will grow 1.3% next year, up from its previous forecast of 1.0% in June, bringing the CBI broadly into line with forecasts from the International Monetary Fund and the OECD.
It raised its forecast for this year to 1.4% from 1.2%, reflecting upward revisions to recent official data.
CBI chief economist Louise Hellem said:
“While it’s welcome to see our growth forecast upgraded for next year, the mood music reads more ‘cautious optimism’ than ‘cause for celebration’.”
The CBI also sees consumer prices rising by 2.6% next year, slightly more than the Bank of England forecast last month.
Updated
MPs announce inquiry into work of Office for Budget Responsibility
MPs have launched an inquiry into the role and performance of the Office for Budget Responsibility.
The all-party Commons Treasury committee will investigate the independent agency’s forecasting performance and impartiality, with the initial request for written evidence finishing at the end of January. This will then be followed by public evidence sessions.
The panel will consider whether reforms are needed 15 years after the OBR was set up by George Osborne when he was Tory chancellor.
MPs on the committee are understood to be concerned after a row broke out between the OBR and the chancellor, Rachel Reeves, over budget briefings.
Richard Hughes, the OBR’s then boss, complained to senior Treasury officials in the run-up to the budget about a flurry of leaks he said had spread “misconceptions” about the agency’s forecasts…. More here.
Updated
Deutsche Bank’s chief UK economist, Sanjay Raja, suspects the impact of budget uncertainty will “linger” through most of the last quarter of the year.
Raja told clients this week:
After a slip up in September, we expect the first tranche of Q4-25 data to err more on the sluggish side - particularly when it comes to underlying growth. But a rebound in auto-manufacturing, following the cyber attacks on Jaguar Land Rover, will likely see the manufacturing sector bounce back into positive territory. Stronger oil and energy output will also help lift activity. But we don’t expect the services sector - the UK’s growth engine - to move. Construction output, we think, will also contract. Altogether, we expect GDP to edge up by only 0.1% m-o-m.
Where to next? We have revised down our Q4-25 GDP growth projection from 0.2% q-o-q to 0.1% q-o-q. Budget uncertainty, we expect, will linger for much of Q4-25, negatively impacting the labour market, and consequently, spending. Business investment, we expect, will also be dampened, as a result. Overall, we see 2025 GDP growth at 1.4% (unchanged relative to our prior expectations).
Introduction: UK GDP report for October coming up....
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The important thing about last month’s budget is that we now have certainty, as one FTSE 100 CEO told me last week; no more endless speculation about which taxes might rise, for example.
But this morning, we’ll learn how much economic damage was caused by budget uncertainty in the run-up to the November’s fiscal event.
October’s GDP report, due to be released at 7am, is expected to show the economy strugled back to growth after a small contraction the previous month. GDP is forecast to have risen by 0.1% in October, having shrunk by 0.1% in September.
The restart of operations at Jaguar Land Rover’s factories in early October, after a cyber attack, should spur activity higher in the manufacturing sector.
On the other hand, though, the swirling speculation around what might be in the budget has hurt consumer sentiment and business investment; that could show up in the data too.
Michael Brown, senior research strategist at brokerage Pepperstone, points out that that this monthly data can be volatile:
On the data front, this morning’s UK GDP stats are set to show the economy having stagnated in October, largely as a result of pre-Budget uncertainty freezing business investment and consumer spending alike, though the monthly data remains very noisy indeed, with relatively little by way of signal able to be extracted from the report.
We’ll see what we can dig out of it, though.
The agenda
7am GMT: UK GDP report for October
7am GMT: UK trade report for October
7.45am GMT: French inflation report for November
8am GMT: Spanish inflation report for November
1.30pm GMT: US national activity index for September
4pm GMT: Russia’s GDP report for Q3
Updated
