UK economy SHRINKS by 0.1% as Rachel Reeves blamed for sparking panic ahead of Budget

During the month, the services sector fell by 0.3 per cent, while construction was down 0.6 per cent. However, production grew by 1.1 per cent.

The ONS found that growth on a rolling three-month basis, to October, was down 0.1 per cent.

A Treasury spokesperson said: “We are determined to defy the forecasts on growth and create good jobs, so everyone is better off, while also helping us invest in better public services.

“That is why the Chancellor is taking £150 off energy bills, protecting record investment in our infrastructure, and we are backing major planning reforms, the expansion of Heathrow and Gatwick airports, and the construction of Sizewell C.”

Downing Street rejected suggestions the UK is on “recession watch” after the economy contracted for the second month running in October.

Speaking to reporters, Sir Keir Starmer’s official spokesman said: “No, I don’t accept that. These are monthly figures.”

He said there was “more to do” and the Government was investing billions, encouraging private investment and reforming the planning system to make it easier to build.

Many businesses have recently indicated that activity in the economy slowed in the lead up to the Budget, delivered on November 26, as speculation over possible tax measures grew.

ONS director of economic statistics Liz McKeown said: “Within production, there was continued weakness in car manufacturing, with the industry only making a slight recovery in October from the substantial fall in output seen in the previous month.”

Britain has now not experienced economic growth since June.

GDP measures the value of goods and services produced in the UK, estimating the size of the economy and its growth.

However, Rachel Reeves insisted at the start of the year “low growth is not our destiny, but that economic growth will not come without a fight".

“Britain is a country of huge potential," the Chancellor added.

Shadow Chancellor Sir Mel Stride said: "This morning's news that the economy unexpectedly shrank in the three months to October is extremely concerning but it's as a direct result of Labour's economic mismanagement.

"Rachel Reeves promised growth but Labour has no plan for the economy - just their own survival, that's why Reeves presented a Benefits Budget that rewards welfare not work.

"For months, Rachel Reeves has misled the British public. She said she wouldn't raise taxes on working people - she broke that promise again.

"She insisted there was a black hole in the public finances - but there wasn't."

Economists polled by Reuters had predicted that October GDP would grow by 0.1 per cent.

The Organisation for Economic Cooperation and Development (OECD) previously said that a slowing in productivity, partly due to a drop in the number of workers coming to the UK, meant “momentum is softening” in the economy.

Professor Joe Nellis, economic adviser at MHA, said: "Looking beyond the immediate period, the figures reinforce the challenges heading into 2026.

"Sustained progress will depend on a clearer pick-up in investment, better productivity performance and a policy environment that encourages long-term decision-making.

"October’s decline in GDP acts as a reminder: the recovery is delicate, easily knocked off course, and still waiting for the catalyst that can turn stability into genuine momentum."

The development comes as the Bank of England considers cutting interest rates next week, following a slowdown in headline inflation and mounting concerns over weak growth and rising unemployment.

Political journalist Theo Usherwood told GB News: "These are not good figures for Rachel Reeves.

"Keir Starmer was adamant that economic growth would get the country back on its feet.

The opposite has happened and we've ended up in a doom-loop where taxes will have to go up next Budget."

Responding to the latest growth figures, Julian Jessop, economics fellow at the Institute of Economic Affairs (IEA) said: "The further contraction in the UK economy in October confirms that Budget speculation has killed growth.

"Indeed, the latest business surveys suggest that November was even worse.

"The burst of growth at the start of the year is now a distant memory.

"The economy began to falter in the spring when the increases in employers National Insurance and other business costs in last year’s Budget finally kicked in.

"There was then a brief recovery as fears of a global trade war faded, but this was followed by an extended period of uncertainty ahead of this year’s Budget.

"The leaks, unhelpful speculation and negative briefings clearly damaged confidence and activity across large parts of the economy."

The pound dipped on Friday morning following the ONS release on Britain's unexpected economic contraction.

Sterling was last at $1.338, slightly softer on the day near session lows, while weakening against the euro, which was at 87.72 pence.

The pound is still heading for a rise of 0.36 per cent this week, after hitting a two-month high on Thursday.

It was also set for a third successive weekly gain as investors sold the dollar on expectations of further Federal Reserve easing next year.