Pre-Budget jitters blamed for surprise contraction in economy

Chancellor Rachel Reeves has come under further pressure as pre-Budget worries and tax hike speculation was widely blamed for an unexpected contraction in the economy during October.

Official figures showed the UK economy shrank for the second month running in October, contracting by 0.1% following a 0.1% decline in September.

Most economists had been expecting a rise of 0.1% for October on hopes of a manufacturing bounceback led by Jaguar Land Rover’s (JLR) recovery from a major cyber attack.

The Office for National Statistics (ONS) said gross domestic product (GDP) fell as car manufacturing activity only made a “slight” recovery from the woes at JLR, with the services sector weighed down as consumers held back spending on the high street before the Budget, delivered on November 26.

The data shows the UK economy has now not grown since June, with GDP either flat or falling in the past four months.

Economists said the weaker-than-expected figures would reinforce hopes of an interest rate cut by the Bank of England next week in what would be a welcome pre-Christmas boost to households.

In the three months to October, the economy shrank by 0.1% after growth of 0.1% in the three months to September, according to the ONS.

Many businesses have recently indicated that activity in the economy slowed in the lead-up to the Budget as speculation over possible tax measures grew.

Barret Kupelian, chief economist at PwC, said: “Some of this weakness still reflects the cyberattack on Jaguar Land Rover, which knocked car output earlier in the autumn, but the bigger story is that speculation around the autumn Budget kept households and businesses in wait-and-see mode.

“Given the timing of the Budget, November’s GDP print is likely to look similarly subdued before any post-Budget effects start to show up.”

Some experts have said weak recent growth was largely driven by rampant speculation in the run up to the Budget.

Former Bank of England chief economist Andy Haldane said last month the prolonged worries over the Budget and leaks over possible tax hikes had “caused businesses and consumers to hunker down”.

Earlier this week, Ms Reeves hit out at “too many leaks” in the run-up to Budget when questioned by a committee of MPs.

Shadow chancellor Sir Mel Stride said the latest GDP blow was “a direct result of Labour’s economic mismanagement”.

He said: “For months, Rachel Reeves has misled the British public. She said she wouldn’t raise taxes on working people – she broke that promise again. She insisted there was a black hole in the public finances – but there wasn’t.”

The ONS data The data revealed that month-on-month activity in car production jumped 9.5% higher in October, but this was only a partial recovery from the 28.6% plunge in September as the JLR cyberattack sent shockwaves through the sector.

Car production activity remained 21.8% lower than in August.

JLR was forced to pause production of its cars for more than a month after being targeted by hackers, having a knock-on impact for the wider sector and resulting in a costly recovery.

It gradually resumed production through October.

Widespread pressure in the rest of the economy also weighed on the GDP outturn, with output down 0.3% across the dominant services sector – including a 1.1% drop for retail – and a 0.6% fall across construction.

A Treasury spokesperson said: “We are determined to defy the forecasts on growth and create good jobs, so everyone is better off, while also helping us invest in better public services.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the recent “Budget chaos” through November is likely to hit growth through that month too, which could see GDP contract by 0.1% in the final quarter of 2026.

He said: “Weak GDP adds to the reasons for the Monetary Policy Committee to cut interest rates next week.

“Rate setters would need a huge surprise in inflation and the labour market data published next week to stop a hike.”