Warning your job, pay and home are at risk as UK economy shrinks

The UK economy unexpectedly declined in October, as a weak month for pubs and restaurants dragged on growth amid some uncertainty ahead of the autumn Budget. The Office for National Statistics (ONS) said gross domestic product (GDP) contracted 0.1% in October.

Most economists had been expecting GDP to rise by 0.1% during the month. The latest figures from the ONS come after it recorded 0.



1% growth between July and September, a slowdown on the 0.4% increase between April and June. Liz McKeown, the ONS’s director of economic statistics, said: “The economy contracted slightly in October, with services showing no growth overall and production and construction both falling.

Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms. “However, the economy still grew a little over the last three months as a whole.” Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said: “The surprise fall in output will be worrying for consumers and business as it puts recession chatter back on the table and signals that the final quarter may be even worse than the third when growth almost stalled.

“The economy has lost momentum since the first three months of this year when it rebounded from the technical recession seen at the end of 2023. While the Government was keen to highlight its efforts to shield working people from higher taxes, the fallout from the measures imposed on businesses could have even bigger consequences for workers. Signs of trouble are already evident with job vacancies plummeting in November amid a slump in business confidence and redundancies on the rise.

“Worryingly, the biggest drop in vacancies was found among permanent workers signalling that employers are already carefully considering staffing levels as they face the prospect of higher employee costs from April. That is when increases in National Insurance costs and the minimum wage kick in, moves that may leave some smaller businesses with little choice but to shut up shop if the hit proves unaffordable. “It means Reeves’s pledge to protect workers from tax rises is now at risk of backfiring if employers continue to trim staffing levels, instigate hiring freezes or rein in pay rises to offset rising costs.

There is also the danger Reeves’ employment measures present to inflation, with major companies already warning of plans to pass on rising employee costs to consumers by hiking prices – delivering a blow to the Government as it champions its efforts to boost economic growth and increase people’s disposable income levels. “Consumers worried that household costs may edge up again in the new year and that the country may be on the brink of recession are likely to adopt a more cautious approach towards spending this festive season. Two interest rate cuts this year may have been comforting for those hoping for respite from high borrowing costs, but the BoE is widely expected to keep rates on hold at its meeting next week as it assesses the impact of the Chancellor’s raft of borrowing, spending and tax plans.

With some mortgage lenders choosing to hike mortgage rates in recent weeks amid shifting interest rate expectations and the cost of servicing loans, credit cards and overdrafts still high, the pain is not over for borrowers just yet. “While the new year typically heralds the arrival of pay rises, those hoping for a bumper Christmas bonus may be disappointed as companies hold back in a bid to keep costs down. It means pay growth may suffer in the coming months at a time when household budgets are still reeling from a protracted period of higher living and borrowing costs following the pandemic.

Add in the hit from the long freeze to personal tax thresholds and more people will find themselves paying higher rates of tax as their income increases. “Consumer confidence has been knocked sideways since the new Government first warned it would need to make ‘painful’ policy changes to get the country’s finances on track. It means Christmas, typically a lucrative period for the economy, may be a more restrained affair as consumers budget carefully rather than lavish the cash on festive fun to protect their finances against any further hits from higher prices, lower end-of-year bonuses or job cuts.

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