UK growth at the start of the fourth quarter took place amid the swirling uncertainty of the lead up to the Autumn Budget. As some had anticipated, it resulted in a weak outturn.
There was a contraction of -0.1% month-on-month for October with companies and consumers largely locked into ‘wait and see’ mode.
Construction and manufacturing were notably weak with businesses experiencing not only significant uncertainty but day-to-day battles with higher employment, escalating energy costs, and waning consumer confidence.
With the Budget now out of the way there is now at least a bit more clarity around the outlook.
SHOT IN THE ARM
Furthermore, while the fiscal event contained little in the way of measures to invigorate growth directly, it should at least have one very important impact – lowering inflation.
Cutting energy prices, capping fuel duty and freezing rail fares will have a downward effect on CPI. Alongside a pedestrian growth picture that poses little inflationary risk, this should mean a shot in the arm arrives in the form of lower interest rates from the Bank of England.
“The Bank of England is poised to slice a further quarter point off base rate.”
In the short term, some festive interest rate cheer looks firmly on the cards this week with the Bank of England poised to slice a further quarter point off base rate.
Even before Friday’s weak growth reading it was viewed as highly likely, but these frankly very poor numbers seal the deal.
And as inflation subsides throughout next year there’s a strong chance of further cuts that take interest rates deeper into less restrictive territory.
This should help prop up household confidence and the all-important property market. Crucially, it stands to stimulate some sorely needed investment activity too and keep the economic wheels grinding in the right direction for the time being.
