The Bank of England looks certain to cut interest rates next week after fresh data revealed further signs of strain on the British economy.
Office for National Statistics data published on Friday showed the UK economy contracted by 0.1 per cent in the three months to the end of October, marking an even worse result than the stagnation forecast by economists.
Monthly GDP also shrank by 0.1 per cent in October, bucking forecasts of 0.1 per cent growth, in further evidence of the damage pre-Budget speculation and uncertainty did to the economy.
It came as the restart of Jaguar Land Rover production, after its cyber attack shutdown, failed to provide the lift economists had hoped for. The manufacturing sector grew by a weaker-than-expected 0.5 per cent.
‘More concerning was the breadth of the slowdown,’ said chief economist at WTI Strategy Martin Beck.
‘The much larger services sector contracted by 0.3 per cent, while construction output fell 0.6 per cent, pointing to economy-wide weakness.
‘Taken together, the figures make a Bank of England interest rate cut next week even more likely.’
BoE Governor Andrew Bailey and the MPC committee look set for a festive rate cut
The BoE is set to follow the US Federal Reserve with another cut in its last monetary policy committee meeting of the year on 18 December.
A cut of 25 basis points will take base rate from 4 to 3.75 per cent, down from this cycle’s peak of 5.25 per cent in August 2023.
And markets are currently pricing another two cuts of the same size next year, taking base rate to 3.25 per cent by the summer.
The cuts come despite consumer price index inflation registering 3.8 per cent in October, down from 4.1 per cent in the previous month but still almost twice the BoE’s 2 per cent target.
Jeremy Batstone Carr, European strategist at Raymond James Investment Services, said MPC rate-setters will weigh ‘inflation-reducing Budget measures’ when making their decision.
He said: ‘Although next week’s decision will rest on forthcoming employment, wage and inflation data, there is nothing in today’s release to cause the Committee’s doves to change their position.
‘In fact, several of the hawks whose votes ensured the previous decision was a very close call may feel sufficiently mollified to dial back their wariness.’
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