The latest GDP figures from the Office for National Statistics reveal the value of the UK’s output has weakened following the 0.2% growth in September.
Wet weather in the month of October had impacted spending by consumers who were already feeling the pressure of the cost-of-living crisis.
Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uk, said: “The latest economic data paints a grim picture for the UK, with the economy contracting by a worrying 0.3% in October.
“This decline stems from the significant impact of rising interest rates, implemented by the Bank of England to curb inflation.”
Meanwhile, Alice Haine, personal finance analyst at Bestinvest, explained: “A contracting economy indicates that high borrowing costs are denting activity and the hangover from the cost-of-living crisis is still hitting household spending.
“The dismal data may reignite fears that the UK economy is heading into a recession – defined by two successive quarters of contraction – as higher interest rates continue to weigh on demand.”
But the fear of a recession may, some experts have said, drive the Bank of England to begin cutting interest rates in a bid to reignite the economy.
What’s been happening to interest rates?
Over the last two years the Bank of England (BoE) has increased the Base Rate at every opportunity. It began the process in December 2021 when it increased the 0.1% rate, which had been set during the pandemic. It is now at 5.25%.
The Bank’s Monetary Policy Committee, which makes the decisions on the Base Rate level, is due to meet tomorrow (Thursday 14 December) when it is expected to hold the rate.
But many think it won’t be long before they begin to start making cuts.
Michelle Lawson, director at Fareham-based broker, Lawson Financial, speaking via the Newspage agency, said: “This data shows what a mess the Bank of England have made of the economy. They seemed hell-bent on increasing rates at every opportunity rather than giving time to see what effect previous increases had.
“It is highly likely we will see base rate cuts in 2024 to attempt to reverse the damage done. This could be the Christmas gift mortgage holders have been waiting for.”
Will interest rates be cut tomorrow?
It would seem any cuts to rates are unlikely to happen straight away.
Pete Mugleston added: “With interest rates at a 15-year high of 5.25%, many Britons are eagerly hoping for a rate cut at the next Bank of England update tomorrow.
“However, this seems unlikely as the government’s recent pledges for economic growth in the Autumn Budget haven’t yet materialised. The UK’s economic future will hinge on a delicate balance between fostering growth and controlling inflation.”
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