UK economy shrank unexpectedly by 0.1% in October

The UK economy unexpectedly contracted 0.1% in October (against forecasts of +0.1%) and fell 0.1% over the three months to October, highlighting a weakening trend after only one month of growth in the past seven; production dropped 0.5% over the quarter, led by a 17.7% collapse in vehicle manufacturing following a Jaguar Land Rover cyber‑attack (vehicle output rose 1.1% in October but remains well below August levels), while the services sector was flat. Analysts say the surprise weakness and dampened consumer and business spending ahead of the Budget strengthen the case for the Bank of England to cut interest rates next week. The government stresses plans to boost growth via lower energy bills and infrastructure investment, but uncertainty around the Budget and mixed signals on private investment leave the near‑term outlook unclear.

Analysis

Official ONS data show the UK economy contracted 0.1% in October and fell 0.1% over the three months to October versus consensus of +0.1% for the month, with only one month of growth in the past seven. Production output declined 0.5% over the quarter, driven by a 17.7% collapse in vehicle manufacturing; services, which represent roughly three-quarters of GDP, were flat over the three-month period.

The sharp vehicle slump reflects a Jaguar Land Rover cyber-attack that halted production in September and only produced a modest 1.1% monthly rebound in October, leaving output well below August levels. Multiple analysts cited Budget-related uncertainty as a material drag on consumer and business spending, with firms and households reportedly delaying purchases ahead of the chancellor's speech.

Market implications are twofold: the surprise weakness strengthens the argument for a near-term Bank of England rate cut at next week’s meeting, according to several economists, and the report increases short-term downside risk to UK growth-sensitive assets. The government has pledged measures such as lower energy bills, major infrastructure investment and a larger fiscal buffer to boost growth, but commentators highlight uncertainty about the timing and effectiveness of these steps, leaving the near-term outlook unclear and sentiment moderately negative.

Key Decisions for Investors

• Position for a near-term Bank of England rate cut by increasing duration exposure and favouring rate-sensitive assets, while monitoring the BoE decision next Thursday
• Underweight UK automotive names and related suppliers until vehicle production shows a sustained recovery beyond the modest 1.1% October rebound and the 17.7% quarterly slump is reversed
• Maintain a cautious stance on UK consumer-facing and services stocks and defer material re-risking until Budget measures are implemented and incoming activity data confirm a resumption of spending