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UK GDP: economy shrank in run-up to election

The UK economy shrank in November after a fall in consumer spending and a downturn in manufacturing before the election, raising pressure on the Bank of England for an interest rate cut.
In a reflection of the political uncertainty hanging over families and businesses before last month’s vote, the Office for National Statistics (ONS) said gross domestic product (GDP) had fallen by 0.3% in November from the previous month.
Most major sectors of the economy except construction recorded a drop in output, including the country’s usually dominant services industry – which includes retail, hotels and finance.
The latest snapshot comes as momentum builds towards an interest rate cut after three members of the Bank of England’s rate-setting committee signalled that weakness in the economy could warrant lower borrowing costs within months to support jobs and growth.
The pound came under selling pressure on Monday, dropping by about 0.7% against the US dollar, to $1.2980, and the euro, to €1.1675, amid rising expectations that the Bank’s monetary policy committee (MPC) could cut rates as soon as its next meeting on 30 January.
Economists at the consultancy Capital Economics said car production had dragged down manufacturing output in November because of car plant shutdowns imposed as a Brexit contingency for the month after the Halloween deadline, before it was extended until the end of January.
Overall manufacturing output fell by 1.7% on the month, while the service sector – which accounts for about 80% of the economy – contracted by 0.3%. An upturn in new infrastructure and commercial building helped to lift growth in the construction sector to 1.9% on the month.
Trade figures from the ONS showed a 7.8% fall in imports on the month, suggesting companies rushed to stockpile goods before the 31 October deadline and then made fewer orders in November. The UK’s total trade balance, measuring the gap between imports and exports, jumped to a record surplus of £4bn in November, up from a deficit of £1.3bn in October.
Andrew Wishart, a UK economist at Capital Economics, said: “In normal times, the MPC would already have cut rates but it held off to see if the general election produced a revival in sentiment. What really matters is what happens in the data for January. At the moment, we think the MPC may hold off from cutting rates but it will be a close call.”
Despite the monthly fall in GDP, government statisticians said the economy had grown slightly more strongly than first thought in September and October. UK GDP rose by 0.1% over the broader three months to November, beating expectations among City economists for a decline by the same amount.
The ONS advises that the three-month figures can provide a more reliable indicator of economic strength than its monthly snapshot, which can be prone to revision as more data becomes available.
However, statisticians warned that the long-term picture for the economy continued to be one of relative weakness. Over the 12 months to November the economy only grew by 0.6%, the weakest pace in more than seven years.
Analysts said the weak growth figures for November meant GDP probably fell in the final three months of last year, marking the second quarter in 2019 when the British economy shrank after a drop in the three months to June. The Bank of England had forecast growth of about 0.1%.
Frances O’Grady, the TUC general secretary, said the government had run out of excuses and needed a plan to boost growth and living standards across the country.
“These figures are bleak news for the economy and working people, with vital industries like manufacturing in the doldrums,” she said.
There are hopes that the economy could recover in the coming months, easing the pressure on the Bank to cut interest rates, after Boris Johnson’s unexpectedly decisive election victory lifted some of the political uncertainty holding back household and business spending.
Garry Young, of the National Institute of Economic and Social Research, Britain’s oldest economics thinktank, said the economy probably flatlined in the final three months of the year.
“While there is some evidence of an improvement in business optimism following the general election, it is doubtful that this will do much to change the short-term economic outlook of further lacklustre growth,” he said.

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