The balance falls as the Chancellor’s growth slows

The pound fell yesterday as official figures showed a surprise drop in growth for Chancellor Rachel Reeves sparked fears of a recession.

Sterling fell by half a dollar to above $1.26, a two-week low, after the Office for National Statistics (ONS) said gross domestic product (GDP) fell in 0.1 percent in October.

Sterling fell by half against the euro at just over €1.20.

The monthly GDP decline was the second in a row and the first time it has declined for two months since the pandemic in 2020.

That added to the risk of the economy slowing down in the current fourth quarter of the year, economists said.

And as inflation rises in the coming months, there are fears that Britain is heading down a path of so-called ‘stagflation’ – where the economy declines as prices rise. The latest GDP figures mean the economy has grown in one of the first four months since Labor took office – and GDP was 0.1 per cent lower than when Reeves and Sir Keir Starmer joined Downing Street.

However, hopes that the weak economy will force the Bank of England to cut interest rates before Christmas at its final policy meeting next week will not materialize. Market expectations for a cut next Thursday will only increase from 10 percent to 13 percent.

The Bank’s survey, which closely monitors the public’s inflation attitudes, said keeping inflation under control remains a challenge.

The survey found that the public will see an increase of 3 percent in the coming year.

That was up from expectations of 2.7 percent in a previous survey three months ago and the first time it has risen since August 2023.

The fall in October GDP was blamed on uncertainty ahead of the Budget, which came late last month.

But for many businesses, the policies announced by Reeves are more dangerous than feared – particularly his £25 billion raid on employer National Insurance.

Businesses say they will have fewer jobs, lower wages, higher wages and less investment. In fact, experts say, the UK is in decline – as recent business surveys suggest it is already doing.

Thomas Pugh, UK analyst at accountancy firm RSM, said: ‘With the economy now contracting for the second consecutive month, and inflation rising to 3 per cent, there is a risk of recession the UK into stagflation territory.’

Pugh said he expects the economy to ‘accelerate to 2025’ now that the Budget has been passed. But Sanjay Raja, UK chief economist at Deutsche Bank, said: ‘There is a lot more bad news out there.

‘The risk of negative quarterly growth has increased.’

Paul Dales, UK chief economist at Capital Economics, said the chance of growth returning in November or December was ‘very remote’.

Isaac Stell, investment director at the Wealth Club, said: ‘With many companies saying they will cut costs and investment to meet the rising costs of the Treasury, the question is, where is the growth?’