Reeves accused by Tories of ‘crashing the economy’ as output shrinks: Live

Kemi Badenoch said figures showing the economy unexpectedly contracted in October show the Prime Minister and Chancellor have been “making the wrong choices” with a Budget that is “crashing the economy”.

The Tory leader told the PA news agency on a visit to Essex: “I think it shows that the Prime Minister and the Chancellor have been making the wrong choices. They inherited an economy that was growing and now it is shrinking. Their Budget is crashing the economy and they need to reverse this.”

Chancellor Rachel Reeves has insisted that things will pick up for the UK.

“The numbers on today’s GDP are disappointing, but it’s not possible to turn around more than a decade of poor economic growth and stagnant living standards in just a few months,” Ms Reeves said.

“But you’ll see from the plans we’ve been announcing – whether that is the energy reforms we’ve published today, the reforms to build one-and-a-half million homes that we published yesterday, the pensions reforms, the creation of a National Wealth Fund – this Government are getting on with the job of improving economic growth and driving up living standards.

“Growth is the number one mission of this Government – economic growth that results in families feeling better off with more money in their pockets – and we’re driving that economic growth and we hope that those numbers will start to improve because of the policies that we’re pursuing in the months ahead.”

Labour is hoping growth will come back with projects like green energy. But growth will come at the cost of local decision-making, energy secretary Ed Miliband has said.

“At the moment we have nationally significant infrastructure projects, which are decided by me as the Secretary of State. We don’t have that for onshore wind because it was banned from 2015 to 2024 – until this Government came to office – by the last government, leaving us vulnerable,” he told BBC Breakfast.

“We are saying that for onshore wind above 100 megawatts, as with other nationally significant infrastructure, that will be a decision made by the Secretary of State and local people will have a say, but these are nationally significant decisions.”

The UK economy isn’t the only one in the doldrums.

Germany’s economy is set to shrink for a second year in a row and only grow slowly after that, according to Germany’s central bank.

The Bundesbank now predicts that the German economy will shrink by 0.2 per cent this year after predicting 0.3 per cent growth in June while the 2025 growth outlook was cut to 0.2 per cent from 1.1 per cent.

An end to cheap natural gas from Russia and weaker demand for its cars from China has been depressing its growth for some time.

Germany is Europe’s largest economy and it relies heavily on its huge manufacturing sector which makes cars under the VW, Audi, Porsche, BMW and Mercedes brands, as well as aerospace parts and chemicals.

Germany’s output per person is $55,500 according to the International Monetary Fund, while the UK’s is $52,400.

One economist has gone a step further and said Britain is now on “recession watch”.

Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “The second successive monthly fall in economic activity in October should put the UK firmly on recession watch. Indeed, output per head may already be falling for the second quarter in a row.

“The loss of momentum is not contained to the UK. Indeed, the manufacturing sector appears to be struggling even more in the rest of Europe, notably Germany and France.

“Nonetheless, the new government’s negative rhetoric over the summer and the anticipation of a tight Budget have damaged sentiment and encouraged many households and business to put spending, hiring and investment on hold.”

The drop in UK production “puts recession chatter back on the table”, one analyst has warned.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, an online investment service, said:

“The Government’s doom-mongering about the state of the public finances in the run up to the Budget dented activity. The surprise fall in output will be worrying for consumers and business as it puts recession chatter back on the table and signals that the final quarter may be even worse than the third when growth almost stalled.

“The economy has lost momentum since the first three months of this year when it rebounded from the technical recession seen at the end of 2023,” she added. A technical recession is two consecutive quarters where the economy shrinks.

“The contraction in October will be concerning for the new Government as it offers a stark reflection of the hit to the economy from the uncertainty running up to the Budget, when consumers and businesses descended into a state of panic over what measures the Chancellor might deliver. Some of the most feared changes to personal taxation may not have materialised, but £40 billion in tax rises is a lot for an economy to get to grips with particularly when businesses are expected to shoulder most of that burden.”

Businesses are pointing to higher employment costs in their reaction to the figures that show the economy shrank.

Anna Leach, Chief Economist at the Institute of Directors, said: “October had seen the third successive decline in the IoD’s confidence measure for business leaders as businesses faced another month of damaging uncertainty in the run-up to the Budget. This provides a weak platform for Q4, and there is a risk that growth has gone into reverse in the private sector.

“As we head further into the festive season, and consumer confidence remains in the doldrums, many businesses are continuing the process of updating their business plans for the coming year to accommodate significant increases in employment costs.

She said that high borrowing costs are hitting investment decisions, which will add to the downbeat feeling in the economy.

“Whilst there are welcome policy measures on the horizon which will over time improve the economic environment – from tax simplification to planning to industrial strategy – the recent blows to businesses have made the task of achieving stronger sustainable growth harder.”

The FTSE 100 index of largest London-listed companies is up a shade, in spite of the gloomy update on the economy. The index gained a paltry 0.08 per cent.

“The Budget continued to be blamed for the UK’s fragile economic performance as official figures showed GDP unexpectedly contracted in October, having also done so in September. This led to weakness in the pound, which can be helpful to the FTSE 100 given the relative boost it affords its dominant overseas earners,”says Dan Coatsworth, investment analyst at AJ Bell.

“More positively, there was a slight uptick in consumer confidence as the Christmas trading period entered its final knockings.

“US stocks endured a modest sell-off in the latest trading session on Wall Street as factory gate prices came in hotter than expected. Given these often feed into higher consumer prices down the line, this release raised concerns about fresh inflationary pressures in the economy.”