By Joshua Kirby


U.K. economic activity continued to decline at the start of the year's final quarter, pouring cold water on the new government's hopes that growth can fund its plans to spend more.

Gross domestic product fell 0.1% in October compared with a month earlier, marking a second straight month of weakening activity, according to figures set out Friday by the Office for National Statistics. Economists had been expecting GDP to expand very slightly, according to a Wall Street Journal poll.

That contraction could spur the Bank of England to consider cutting interest rates more quickly. Investors currently expect the bank's policy committee to leave borrowing costs unchanged at next week's meeting, in line with a pattern of quarterly cuts that contrasts with a more rapid pace at peers such as the European Central Bank. The ECB on Thursday cuts its key rates for a third-straight meeting and a fourth time this year, and lowered its projections for the currency area's growth this year and ahead.

U.K. policymakers are hoping for a soft landing from the inflation surge that was sparked by Russia's fullscale invasion of Ukraine in early 2022. Prices are now rising at a pace that is closer to the BOE's 2% target, allowing rate setters earlier this year to begin to bring borrowing costs lower.

But Britain's trajectory in 2024 has proved uneven, with economic expansion in four of the first five months of the year followed by months of stagnation and contraction. Some firms might have delayed investment until after the government's budget, which it set out at the end of October. Businesses in areas including manufacturing, wholesalers and professional services said turnover was affected ahead of the tax-and-spending plans, the ONS said.

Still, the new contraction will trouble the Labour government that took office in July and made growth a priority, announcing increases in spending to help achieve that goal. Britain is set to be outpaced by the U.S., Canada and some other advanced economies this year and next, according to projections from the International Monetary Fund. Geopolitical turmoil and an uncertain trade environment, including the threat of tariffs on goods exported to the U.S., add further threats to the country's prospects.


Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby


(END) Dow Jones Newswires

12-13-24 0242ET