UK economy heading for recession despite October growth – what it means for your finances

THE UK economy grew by 0.5% in the month to October, the Office for National Statistics (ONS) said.

However, it said the three months to October saw the economy drop by 0.3% compared with the previous three months.

A country is in recession if there’s two consecutive quarters of Gross Domestic Product (GDP) falling.

There was a rebound in October after a contraction in September when output was impacted by the extra bank holiday for the Queen’s funeral.

The ONS said gross domestic product (GDP) grew by a bigger-than-expected 0.5% between September and October in a bounce back from a 0.6% contraction the previous month.

It marked the biggest expansion since November last year, and was more than the 0.4% rise expected by most economists.

It comes after September was affected by the lower number of working days due to the additional bank holiday for the Queen’s state funeral.

However, experts said the bigger picture is still one of a shrinking economy amid the cost-of-living crisis, with the UK set to suffer a prolonged recession.

The Confederation of British Industry (CBI) forecasted last week the economy is likely to fall into recession by the end of the year.

Darren Morgan, ONS director of economic statistics, said: “The economy bounced back in October, recovering from the impact of the additional bank holiday for the state funeral.

“In particular, car sales rebounded after a very poor September, while the health sector also saw a strong month, with GP appointments, A&E attendance and the Covid-19 autumn booster campaign all driving up the sector.

“Construction continued its strong trend over the last year and stands at its highest level on record, with new housebuilding driving growth this month.

“However, over the last three months as a whole the economy shrank, with falls seen across services and manufacturing.”

Alice Haine, personal finance analyst at Bestinvest, added: “While the October data is slightly more upbeat than expected with the economy now 0.4% above its pre-pandemic level, output contracted 0.3% in the three months to October, confirming what most of us already know – the country is still on track for a recession. 

“A recession will only add more pressure on household finances, stretched to the max by tearaway inflation, high mortgage costs and falling real incomes.”

Meanwhile, chancellor Jeremy Hunt warned of a “tough road ahead”.

“Like the rest of Europe, we are not immune from the aftershocks of Covid-19, Putin’s war and high global gas prices,” he said.

“Our plan has restored economic stability and will help drive down inflation next year, but also lay the foundations for long-term growth through continued record investment in new infrastructure, science and innovation.”

What is a recession?

A country is in recession if there’s two consecutive quarters of Gross Domestic Product (GDP) falling.

The year is split into four quarters.

A measure of whether an economy is growing or shrinking is based on something called Gross Domestic Product (GDP).

In the UK this is the value of all the goods and services added up in pounds.

Recessions are bad news, because they normally lead to job losses and wages stalling.

This then means the government gets less tax, which could mean cuts to services and benefits, or that tax rates go up.

The UK last went into recession in 2020 after the coronavirus pandemic hit, shutting down large parts of the economy.

What does a recession mean for your money?

Job losses are common, as companies try to cut their costs to stay afloat.

Businesses may also go bust, which means staff being laid off.

The 2008 recession, for example, saw the loss of high street stores including music retailer Zavvi, clothes shop Principles, and stalwart Woolworths.

The Government may make cut backs or raise taxes to try and shore up its finances – alternatively, it may decide to increase budgets to spend its way out of the problem.

If inflation soars – as it is at the moment – people will find their wages can’t keep up and their money doesn’t go as far as it used to.

That’s one of the reasons why so many workers have been striking in recent months, as their wages lag behind the rate of inflation.

The record level of inflation is why energy bills, petrol and food prices have gone up so much in recent months.

During a recession, the number of households in debt and arrears, when you fall behind with payments, is likely to go up.

There could also be more defaults on loans and mortgages or repossessions and bankruptcies.