The British economy contracted in October, official data showed on Wednesday, raising the risk of recession and testing the Bank of England’s resolve to maintain its tough anti-inflation line in exchange for interest cuts, which have reached a 15-year high.
The Office for National Statistics said that Britain’s gross domestic product fell 0.3% compared to September, adding that unusually wet weather may have affected the data.
Economists polled by Reuters did not expect any change in GDP in October.
This was the first time since July that GDP contracted on a monthly basis.
Investors increased their bets that the Bank of England will start cutting interest rates in June 2024, and the yield on 10-year British government bonds fell to its lowest level since May.
However, the general expectation is that the central bank will keep interest rates at 5.25% on Thursday and again signal that it is not close to lowering it, as it tries to ensure that the UK’s still high inflation rate – 4.6% at its last reading in… October – Under control.
Paul Dales, chief UK economist at Capital Economics, said the October data suggested the UK could be in recession.
“This may bring the Bank of England a little closer to cutting interest rates, although by leaving interest rates at 5.25% tomorrow, the bank is more likely to oppose the idea of cutting interest rates in the short term,” Dales said.
HSBC’s Elisabeth Martins said she still expects another 6-3 vote from the Bank of England’s monetary policy committee to keep interest rates unchanged, but weak GDP data – published a day after signs of slowing wage growth – may push some… The three members who want to raise interest rates join the majority that do not want the changes.
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