UK economy shrinks, raises risk of recession

LONDON: Britain's economy shrank in October, official data showed on Wednesday, raising the risk of a recession and testing the Bank of England's resolve to stick to its anti-inflation line against cutting interest rates from their 15-year high.

Gross domestic product (GDP) fell by 0.3% from September, the Office for National Statistics said, adding that exceptionally wet weather might have impacted the data.

It was the first time since July that GDP had shrunk on a month-by-month basis. Sterling fell by about a third of a cent against the US dollar and was weaker against the euro too. Investors added to their bets on the BoE starting to cut interest rates in June 2024, and the yield on 10-year British government bonds fell to its lowest since May.


However, the central bank is widely expected to keep Bank Rate at 5.25% on Thursday and signal once again that it is not close to cutting them as it tries to ensure that Britain's still-high inflation rate - 4.6% at its most recent reading in October - is brought under control.

Paul Dales, chief UK economist at Capital Economics, said the October data suggested Britain might be in a recession. "That may nudge the BoE little closer to cutting rates, although when leaving rates at 5.25% tomorrow the Bank will probably push back against the idea of near-term rate cuts," Dales said.