The UK financial system unexpectedly contracted by 0.1% in October, official figures have revealed.
Gross home product (GDP), which measures financial output, noticed a shock fall of 0.1%, the Workplace of Nationwide Statistics (ONS) mentioned. Economists had predicted it could develop by 0.1%.
The financial system additionally shrank by 0.1% within the three months to October.
The service sector, which represents three quarters of the financial system, noticed no development, in comparison with development of 0.2% within the three months to September 2025, which ONS mentioned “continues the latest development of slowing development within the service sector”.
Manufacturing output fell by 0.5%, pushed by a fall within the manufacture of motor automobiles, trailers and semi-trailers on this interval. The decline follows a fall of 0.5% within the three months to September.
Development output fell by 0.3%, in contrast with a development of 0.1% within the three months to September 2025.
The newest figures will probably be a blow to the federal government which has positioned development on the coronary heart of their plans.
A Treasury spokesperson mentioned:
“We’re decided to defy the forecasts on development and create good jobs, so everybody is healthier off, whereas additionally serving to us spend money on higher public companies.
“That’s the reason the chancellor is taking £150 off power payments, defending document funding in our infrastructure, and we’re backing main planning reforms, the growth of Heathrow and Gatwick airports, and the development of Sizewell C.”
The Conservatives’ Shadow chancellor Sir Mel Stride mentioned the lead-up to the Funds in November was accountable for the financial system shrinking, as a result of leaks and hints about potential tax rises.
He added: “For months, Rachel Reeves has misled the British public. She mentioned she wouldn’t increase taxes on working folks – she broke that promise once more. She insisted there was a black gap within the public funds – however there wasn’t.”
Expects react to GDP shrinking in October 2025
Stuart Morrison, analysis supervisor on the British Chambers of Commerce, mentioned:
“There’s little festive cheer for companies within the newest GDP knowledge, because the financial system unexpectedly shrank in each the three-month interval and October itself. Corporations are left ready for an unlikely Christmas miracle on development.
“The info paints a very worrying image on the companies sector, which is normally an actual power of the UK economy.
“The BCC’s newest financial forecast, printed yesterday, reveals 2026 will probably be one other difficult yr with restricted development, low ranges of enterprise funding, exports slowing and
“The Funds didn’t hit all companies with one other normal tax hike, however the chancellor’s assertion was a missed alternative on development levers.
“Next yr have to be the second the federal government works with enterprise to unlock development, with a specific deal with each boosting commerce and serving to companies embrace AI. It’s additionally essential that the welcome concepts within the latest industrial, commerce and infrastructure methods are delivered, reasonably than simply remaining phrases on a web page.”
Mike Randall, CEO at Merely Asset Finance, mentioned:
“A small dip in development in October underlines a easy reality: even within the face of relentless hypothesis and negativity forward of the Autumn Funds, SMEs saved pushing ahead.
“However with smaller companies nonetheless calling for assist with power payments a yr on, that dedication can solely stretch to this point earlier than margins change into unsustainable.
“To unlock the following section of development, we now want sensible measures that ease price pressures, again funding, and create an atmosphere the place entrepreneurial ambition is rewarded. Give SMEs the arrogance and the instruments, and they’ll do the heavy lifting for the UK’s restoration.”
James Bentley, director at Monetary Markets On-line, mentioned:
“Britain’s financial system has been lit up, not with festive sparkle however by warning lights.
“Cooling has become contraction, and at this price the Christmas rate of interest minimize will get a sequel by February.
“Issues have gone from dangerous to worse for producers, with sector output shrinking by 0.7% within the three months to October. The development sector, typically seen as a barometer for broader enterprise confidence, additionally contracted by 0.3%. Non-public sector housebuilding – the picture opp of alternative for chancellors – shrank by a humiliating 2.4%.
“In the meantime the UK’s enormous service sector, engine room of the financial system, idled with zero development.
“With unemployment up at 5% and the financial system sliding, the query now isn’t whether or not the Financial institution of England will minimize rates of interest subsequent week, it’s how large will the minimize be?
“Whereas the markets have been anticipating a 0.25% minimize for weeks, there’s now a risk of a supersize 0.5% minimize.
“The Financial institution is assured that inflation, although nonetheless excessive at 3.6%, has peaked – and its complete focus is now on stimulating the moribund financial system.
“Even when we don’t get a double minimize subsequent week, the probabilities of an extra base price minimize coming in February have risen sharply.
“Cue a screeching U-turn for the Pound, which had been on a profitable streak in opposition to the Greenback this week. Sterling has plunged deep into the crimson and UK equities are rattled.
“If the information from the month earlier than the chancellor’s tax-raising Funds was this dangerous, how a lot worse will the November and December numbers look? Cheerio Christmas cheer.”
Jonathan Moyes, head of funding analysis at Wealth Membership, mentioned:
“The federal government and the chancellor spent a lot of their time sapping what little confidence the UK financial system had left in October. So it isn’t unsurprising to see the financial system not solely stagnate, however contract within the month earlier than the funds.
“Confidence is a key ingredient for a thriving financial system, it’s a disgrace to see it given away so freely to masks political decisions. For comparability, US GDP development in Q3 is anticipated to return in at a blistering 3.8%. The UK is firmly within the world gradual lane.
“Wanting forward, a well-known saying springs to thoughts, “to know a rustic’s future, take a look at its youth”, nicely, inside the UK it’s younger are leaving by their tons of of 1000’s.”
