UK Economy: Fourth quarter not shaping up well

October GDP fell 0.1% month-on-month after falling 0.1% in September.

Services output was flat on the month, manufacturing output fell 0.6% month-on-month and construction output fell too.

There was mention in October business surveys of pre-Budget uncertainty playing a role in making firms and households more cautious, and that looks to have played some role here. However, the Office for National Statistics say that while some sectors did see businesses delay activity, some sectors (e.g. real estate) saw activity brought forward ahead of the Budget.

With business surveys not brightening up post-Budget and a drop in business optimism, it isn’t obvious that overall GDP growth will bounce back in November and December either, though consumer confidence at least has improved a bit. At this point there is a reasonable chance that GDP will contract in the fourth quarter. If November and December month-on-month GDP was flat, and assuming no back revisions to the data, then GDP would be on track to contract slightly in the fourth quarter.

As for the Bank of England, in isolation this adds to the probability that they speed up the pace of cuts a bit. Fourth quarter GDP looks set to disappoint their forecast. However, the labour market data and CPI figures this week will likely be more important to their thinking. We’ll get the flash December PMIs this week too. I’ve been assuming that the Bank of England will stay on hold in December and will only cut three times next year. I think that the risks are increasingly skewed towards them doing more.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.