UK GDP Shrinks in October, Raising Recession Concerns for Q4 2024 - Deutsche Bank Research

The economic performance of the UK is raising concerns as the Office for National Statistics (ONS) reported a monthly contraction of 0.1% in October's gross domestic product (GDP) data. This information is based on a report from Deutsche Bank Research.

Deutsche Bank's real-time forecasting models indicate a potential negative tail risk for quarterly GDP growth in the fourth quarter of 2024 (ranging between -0.1% and 0.1%). The report also states that the risk of a quarterly contraction can no longer be disregarded.

"Of course, we had warned about downside risks in our preliminary assessment, and our real-time forecasting models were indicating a 'larger negative tail risk,'" the report notes.

This signifies that GDP has fallen short of expectations in four out of the last five months and points to a potential issue for economic growth in the fourth quarter of 2024.

Deutsche Bank expects that the slowdown in GDP will have significant implications for policies. A lower GDP will impact cash revenues and increase the risk of a funding shortfall according to the OBR's current projections.

For monetary policymakers, the slowdown in growth may provide some breathing room for the committee amid rising pressures on prices due to the increase in employer National Insurance Contributions and transitions.

Looking ahead, the October labor market data is expected to be pivotal for growth in the fourth quarter of 2024. While Deutsche Bank anticipates a slowdown in wage momentum, it expects overall employment and unemployment rates to remain largely unchanged.

Additionally, a 3% decrease in job vacancies is anticipated, which will heighten the risks of contraction in the quarter.