UK ‘still facing recession’ despite return to growth in October as Jeremy Hunt warns of ‘tough road ahead’

The UK’s economy returned to growth in October after a contraction in September which was largely due to the extra bank holiday for the Queen’s funeral, official figures show.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.5% between September and October in a bounce back from a 0.6% contraction the previous month.

October’s rebound marked the biggest expansion since November 2021 and was higher than the 0.4% rise economists had forecast, with the growth mostly explained by the number of working days returning to normal rather than any real surge in output.

The ONS data showed the services sector – the biggest sector of the economy – expanded by 0.6% in October after an 0.8% drop in the previous month, boosted by a recovery in car sales and the health sector due to a ramp up in Covid-19 tests and vaccinations. The manufacturing sector also rose by 0.7% and the construction industry saw a 0.8% expansion – the fourth monthly increase in a row.

Darren Morgan, ONS director of economic statistics, said: “The economy bounced back in October, recovering from the impact of the additional bank holiday for the state funeral.

“In particular, car sales rebounded after a very poor September, while the health sector also saw a strong month, with GP appointments, A&E attendance and the Covid-19 autumn booster campaign all driving up the sector.

“Construction continued its strong trend over the last year and stands at its highest level on record, with new house building driving growth this month. However, over the last three months as a whole the economy shrank, with falls seen across services and manufacturing.”

UK tipped to enter recession ‘by end of the year’

Experts are warning that the bigger picture is still one of a shrinking economy due to the cost of living crisis, with the UK expected to enter a recession by the end of the year. The ONS said this is reflected in the less volatile data over the three months to October, which saw the economy drop by 0.3% compared with the previous three months.

Chancellor Jeremy Hunt warned of a “tough road ahead” and said the UK, like the rest of Europe, is “not immune from the aftershocks of Covid-19, Putin’s war and high global gas prices.”

He added that the economic situation is “likely to get worse before it gets better” and the wave of winter strikes would make it more difficult. He told Sky News: “I think it’s a very challenging international picture. About a third of the world’s economies are predicted to be in recession, either this year or next.

“We’re no different in this country and truthfully, it is likely to get worse before it gets better, which makes it even more difficult when we have big public sector strikes going on at the moment.”

The Bank of England is still battling to rein in sky-high inflation that is weighing on growth and is set to hike interest rates again on Thursday (15 December) despite the worsening economic outlook. Economists are expecting a rise from 3% to 3.5% – which would be the highest level for 14 years.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), said October’s rebound was a “false dawn for the economy” and may not prevent a recession.

He said: “The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in gross domestic product (GDP) in November and December, despite a possible boost to consumer activity from the World Cup.

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

Meanwhile, Samuel Tombs, chief economist at Pantheon Macroeconomics, is predicting the UK will have officially entered a recession – as defined by two quarters in a row of falling output – by the end of the year, stating: “We think that GDP will fall by about 0.3% month-to-month in both November and December, leaving it down 0.2% on a quarter-on-quarter basis.”

He added: “The government looks set to pull back energy price support substantially next year, while higher interest rates will squeeze disposable incomes and spur households and businesses to pay off debt.

“As a result, we continue to expect a peak-to-trough fall in the quarterly measure of GDP of about 2%, and doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G7 economies.”