GDP rebounds in October but recession still expected: ONS

UK GDP grew by a higher than expected 0.5% in October, following a fall of 0.6% in September, according to the latest ONS statistics.

October's growth was affected by the additional bank holiday for the Queen's funeral.

Looking at the broader picture, GDP fell by 0.3% in the three months to October compared with the previous quarter.

The services sector grew by 0.6% in October, after falling by 0.8% in September; the largest contribution to the growth came from wholesale and retail trade and repair of motor vehicles, which rose by 1.9% in the month.

Output in consumer-facing services grew by 1.2%, after falls of 1.7% in September and 1.6% in August.

Production remained broadly flat in October 2022, after growth of 0.2% in September 2022; manufacturing was the only sub-sector to contribute positively to production in October 2022, offset by negative contributions from electricity and gas.

The construction sector grew by 0.8% in October 2022, its fourth consecutive increase.

Marcus Brookes, chief investment officer at Quilter Investors, said: “Following September’s fall in GDP, the UK’s economic output bounced back somewhat with a 0.5% gain in October, slightly more than expected. In isolation this should be celebrated, but looking at the wider context and the picture for the UK economy remains an unhealthy one as we head into the winter months. GDP fell by 0.3% in the three months to October compared with the three months to July, and given the Bank of England fears the country is already in a recession this is likely to be the picture going forward for some time.

“While inflation is expected to be at or around its peak now, it is proving to be very stubborn and is contributing to a prolonged cost of living crisis. With political factors continuing to play out, energy prices are not going to suddenly fall sharply, while we have also recently entered a fiscally restrained period from the government, with spending cuts accompanying large tax increases. This is going to be an incredibly difficult winter for many people, and with the weather no longer mild for the time of year, the economy could be frozen."

Alice Haine, personal finance analyst at Bestinvest, commented: “While the October data is slightly more upbeat than expected with the economy now 0.4% above its pre-pandemic level, output contracted 0.3% in the three months to October, confirming what most of us already know – the country is still on track for a recession.

“A recession will only add more pressure on household finances, stretched to the max by tearaway inflation, high mortgage costs and falling real incomes. Many have already slashed their spending in a bid to balance the books, something evident in the 0.5% drop in household consumption seen in the third quarter.

“With inflation expected to top out in the fourth quarter of this year and halve by the end of next, interest rates set to peak at a slightly lower level than feared of 4.5% in the Spring and borrowing costs potentially on the retreat, households might hope for some respite in the new year. But with a long recession on the cards and energy costs jumping in April, the financial challenges are here to stay for now.”

George Lagarias, chief economist at Mazars, added: “October GDP grew slightly more than expected, at 0.5%, mostly due to an improvement in retail sales. Today’s number does little to change the grim outlook for the UK economy. Markets still expect a recession early next year. Demand is set to be weak, as high energy prices persist and winter has really just begun. Meanwhile, the jobs market is projected to remain tight for months, and thus inflation persistent, until new workers have been trained appropriately to reduce the mismatch between the skills required and those available Despite October’s growth, it would take a significant turnaround in policymaking and/or global conditions to change the downward British economic trajectory.”