Politics

Interest rates cut ‘looks more likely’ as economy falls back in November



A cut in interest rates looked more likely today as economic data revealed the UK economy slid into decline during November.

Monthly GDP fell by 0.3 per cent in November after growth in the previous two months, said the Office for National Statistics.

But there was overall growth of 0.1 per cent during the three-month period between September and November, with figures for September and October turning out healthier than previously thought.


City experts said the jury was out on whether the Bank of England will cut rates, with much depending on data later this month. Weakness in the manufacturing sector was the chief cause of the dip, the ONS found. 

Rob Kent-Smith, head of GDP at the ONS, said: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing.”

He added: “Long-term the economy continues to slow, with growth compared with the same time last year at its lowest since the spring of 2012.”

Howard Archer, chief economic advisor at EY Item Club, said November’s decline was probably caused by businesses and consumers sitting on their hands during the uncertainties of the general election period and the delay to Brexit.

“There now looks to be a very real chance that the economy contracted marginally over the fourth quarter of 2019. At best it may have stagnated,” he said.

Dr Archer said the data would “fuel” talk of a rates cut from 0.75 per cent to 0.5 in the near term but the Monetary Policy Committee would probably wait for this month’s purchasing managers’ surveys, industrial trends and distributive trades surveys before making a decision.

Andrew Wishart, 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.”

John Hawksworth, chief economist at PwC, said the economy was confirmed to be “in the doldrums”, with most major sectors except construction squeezed in November.

But he said November was beset by “heightened economic and political uncertainty” and an improvement could follow.

“It is too early to say for sure if economic momentum will pick up in the new year now the political situation is clearer but our latest survey of the financial services sector does suggest some boost to optimism,” he said.

Manufacturing output fell 1.7 per cent in November, while services dipped by 0.3 per cent. However, construction output returned to strong growth, up  1.9 per cent after a 2.2 per cent decline reported in October. Monthly figures are volatile, analysts cautioned.

Chris Williamson, chief business economist at IHS Markit, said: “The data adds to signs that the UK economy stagnated, at best, in the fourth quarter of last year.”



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