Budget blamed for unexpected fall in GDP as Bank set to cut interest rates

Britain’s economy shrank unexpectedly in October 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.

- Richard Partington Senior economics correspondent

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 Bank is widely expected to cut rates by a quarter of a percentage point to 3.75% when it announces its latest decision on Thursday.

“The UK economy has faltered more dramatically than we expected,” said Andrew Wishart, a senior UK economist at Berenberg. “This loss of momentum will bring inflation down more swiftly than we previously anticipated, allowing the BoE to act.”

Highlighting caution among businesses and households in the run-up to the chancellor's tax-raising budget, the ONS said a sharp 0.3% decline in output in Britain’s dominant service sector contributed most to the fall.