With the news that the UK GDP in October shrank 0.1% after a similar contraction in September, and consumer confidence dented spending in pubs and restaurants ahead of the Budget, Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK GDP figures:
One month doesn’t tell the whole story but when the UK economy shrinks for two months in a row it is cause for concern.
Think back to the last time the country experienced a double contraction, and you’ll find yourself back in the pandemic when the country was locked down for the first time and no one knew what to expect.
This double dip is being blamed on the uncertainty created ahead of the budget, with individuals and businesses worried about potential tax rises and unwilling to spend.
It’s notable that bars, restaurants, arts and recreation were battered. That kind of discretionary spend is easy to cut back on if you’re concerned about what the coming months might bring.
We were all warned that things would get worse before they got better, and many households seem to have taken that to heart when it comes to their spending decisions.
Businesses too cut back on some spending and hiring decisions and manufacturers slowed production.
There were some positive byproducts of all the uncertainty, as some homebuyers rushed to complete purchases and many of those worried about potential tax changes consulted financial advisers and accountants.
If you zoom out over three months, things look slightly different, with the economy overall managing to eke out slim growth.
But the spark the UK enjoyed at the start of the year has fizzled out and, if you look back over 6 months, the economy has been flat or falling in every month aside from August.
Growth was highlighted during the election campaign as being the prize, the magic that makes us all wealthier.
But the formula for that magic has proved elusive.
The question now is whether post-budget, with the uncertainty over, has the government created the right mix of ingredients to conjure growth and how long will it take for that growth to materialise?
