A Christmas calamity: UK economy shrinks impacting household budgets

New statistics from the Office of National Statistics (ONS) have shown that Britain’s economy shrank by 0.3% in October as higher interest rates squeezed household budgets.

Today, 13^th December, the ONS announced that gross domestic product (GDP) unexpectedly fell on the month following a growth of 0.2% in September. In a tragic turn of events, city economists had forecast zero growth.

One of the reasons the economy shrank was because poor weather had forced construction and manufacturing projects to be stopped, as well as declines also being seen in IT, legal firms, and film production.

Commenting on the latest figures, chancellor Jeremy Hunt said it was ‘inevitable’ that economic growth would be low whilst ‘interest rates are doing their job to bring inflation down.’

However, in a contrasting tone, Paul Dales, the chief UK economist at the consultancy Capital Economics, said the figure ‘suggests that the economy may go nowhere again in the fourth quarter, or perhaps is in the mildest of mild recessions.’

News of the economy reducing have come as the Bank of England prepares to keep interest rates on hold on Thursday for a third consecutive time. Since December 2021 the Bank have hiked interest rates 14 times.

Inflation fell back from 6.7% in September to 4.6% in October, but official figures for November are set to be released on Wednesday 20^th December. The reduction in the headline rate does not mean prices are coming down, it merely means that they are rising less rapidly.

Against the backdrop of the new GDP figures coming out today, John Glencross, CEO and co-founder of Calculus, a pioneered tax efficient, has said support for small businesses is important now more than ever before.

‘Latest figures show a contraction of GDP, which is signalling a continued tepid environment into 2024,’ John said. ‘Now more than ever we need to support UK smaller businesses, which ignite growth, increase employment, and drive innovation. Calculus is looking pragmatically yet hopefully at the coming year. As Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) investors, we understand the long-term nature of investments into private unquoted companies and have the flexibility to ride out these periods.’

This tone is echoed by the shadow chancellor Rachel Reeves who has said that the current Conservative party are unfit to guide Britain out of the current cost-of-living crisis.

Upon his election, Prime Minister Rishi Sunak pledged to half inflation and last month when it was revealed inflation had once again fallen in October, he was the first to bask in his victory. However, economists have since said the prime minister was in danger of his growth target failing to be met.

In addition, the Bank of England have also warned that the country faces a 50-50 chance of a recession in 2024 as higher living costs and elevated interest rates weigh on households and businesses.

Image: Sandy Millar

More on inflation:

Rents to outpace rise in housing benefit rates over next two years

Bank of England’s path of pain: Interest rates expected to remain high