The UK economy shrank unexpectedly in October, as rumours around potential Budget changes weighed on consumer sentiment.
Official figures from the Office for National Statistics showed the economy contracted by 0.1% in October, despite economists expecting it to grow by 0.1%.
The economy also shrank by 0.1% in the three months to October.
Lindsay James, investment strategist at Quilter, said: “This fall in growth highlights the continuing trend of the past three months that have seen the already fragile levels of growth evaporate completely and go into reverse, with the three-month figure coming in at a 0.1% fall. Much of this can be put down to the Budget and the deterioration in consumer confidence, spending and business planning.”
Services fell by 0.3% in October, while construction output fell by 0.6% and production grew by 1.1%.
Rob Morgan, chief investment analyst at Charles Stanley, said the month saw companies and consumers largely locked into a “wait and see” mode.
“Construction and manufacturing were notably weak with businesses experiencing not only significant uncertainty but day-to-day battles with higher employment, escalating energy costs, and waning consumer confidence,” he said.
The lower-than-expected figures have increased speculation that the Bank of England will cut interest rates when it meets later this month.
James said: “These figures make it increasingly likely the Bank of England will have to lower rates next week when it meets, but with inflation remaining persistently high, the pace at which subsequent cuts can be delivered remains questionable.”
Luke Bartholomew, deputy chief economist at Aberdeen, shared a similar sentiment.
“The economy is clearly struggling to find any momentum, amid a weak labour market and fiscal concerns. All of which reinforces the case for the Bank of England to cut interest rates next week, and we expect further cuts next year too, eventually taking interest rates back towards 3%.”
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