UK GDP: Dire data to trigger pre-Xmas interest rate cut for millions of borrowers

Analysts said the Bank of England was highly likely to trim the bank base rate by a further quarter point this coming Thursday, triggering lower lending costs for millions of borrowers.

It comes after the Office for National Statistics (ONS) said UK gross domestic product (GDP) - a measure of overall economic output - fell 0.1 per cent in October, following a 0.1 per cent decline in September. Most economists had been expecting a rise of 0.1 per cent for October on hopes of a manufacturing bounceback led by Jaguar Land Rover’s recovery from a major online hack.

The latest ONS data showed that the UK economy has not grown since June, with GDP either flat or falling in the past four months. Many businesses have recently indicated that activity in the economy slowed in the lead up to the autumn Budget, delivered on November 26, as speculation over possible tax measures grew.

Jeremy Batstone Carr, European strategist at Raymond James Investment Services, said the weak GDP data paved the way for a rate cut at the monetary policy committee (MPC) meeting on December 18.

“With such downbeat pre-Budget headlines, it was unsurprising that, just as last year, household and business confidence began the fourth quarter at a low,” he noted. “Admittedly, consumers may have been waiting for Black Friday sales rather than heading to the shops, with other areas of household spending faring better.

“Overall, however, service sector activity remained very weak, with the headline data also reflecting the adverse impact of scientific research and a sharp deterioration in the construction sector.

“Looking ahead, rate-setters at the Bank of England will view [this] release, in conjunction with inflation-reducing Budget measures, as no impediment to a pre-Christmas interest rate cut.”

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Luke Bartholomew, deputy chief economist at Scottish investment firm Aberdeen, noted: “The economy is clearly struggling to find any momentum, amid a weak labour market and fiscal concerns. All of which reinforces the case for the Bank of England to cut interest rates next week, and we expect further cuts next year too, eventually taking interest rates back towards 3 per cent.”

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.”

Savings rates will tend to follow the Bank of England’s actions, and experts said it was likely that they would trend downwards in 2026. However, there’s a huge amount of competition in the savings market, as providers push for market share.

Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, said: “There are some particularly competitive deals available from online banks and savings platforms, so it’s well worth checking out what’s on offer if you haven’t switched for a while. Both easy access rates and fixed terms have risen in the past two weeks on our active savings platform as competition heats up.”