UK economy contracting by 0.3% in October “potentially good news for borrowers”

Mortgage brokers have said that the economy contracting by 0.3% in October could see the Bank of England cut rates sooner rather than later, which will benefit borrowers and potentially boost the property market.

The Office for National Statistics said services output fell by 0.2% in October 2023, driven by a fall in information and communication, and was the main contributor to the fall in growth in GDP; this follows growth of 0.2% in September 2023.

It added that production output fell by 0.8% in October 2023, driven by widespread declines in manufacturing, after showing no growth in September 2023 — and that the construction sector fell by 0.5% in October 2023 after growth of 0.4% in September 2023.

According to Riz Malik, director at Southend-on-Sea-based R3 Mortgages: “These numbers are weaker than expected but weak numbers are what we need for Threadneedle Street to cut rates sooner rather than later. Sad news for UK Plc but potentially good news for mortgage borrowers.”

It’s a view shared by Justin Moy, managing director at Chelmsford-based EHF Mortgages: “This fall in GDP is bad news for the economy as a whole. The only positive is that it could see the base rate cut earlier than expected in an attempt to jump-start the economy.”

Stephen Perkins, managing director at Norwich-based Yellow Brick Mortgages, agreed: “The latest GDP figures show a bleak mid-winter for the UK economy. They reflect the continued cost of living crisis eroding people’s spending power and the current plight of many businesses. The only positive is that this should make a base rate hold decision from the Bank of England this month much more likely, meaning stability all the way through to the following review in February. The odds of a rate cut earlier in 2024 than originally expected have just shortened, which will boost sentiment in both the mortgage and property markets.”

Gary Bush, director at the Potters Bar-based broker, MortgageShop.com, said the news is saddening but should mean a pause at this week’s MPC meeting: “Saddening GDP figures from the UK this morning, and with rumours of slow Christmas trade in retail, it’s a disappointing situation all around. The only positive I can read here is that the Bank of England will be forced to pause again in its interest rate decision tomorrow lunchtime in its Monetary Policy Committee meeting.” 
 
Meanwhile, Craig Fish, director at London-based broker, Lodestone Mortgages & Protection, said the GDP print could see Bank Rate cut as early as Q1: “Whilst bad news for the economy, and sad news for so many businesses, this could be the gift that mortgage holders in the UK have been waiting for. A slowdown in the economy means that there is potential for those who set the base rate to consider cutting it sooner rather than later. We will still likely see a hold on Thursday, but the first base rate cut could come as early as the end of the first quarter 2024.”

Samuel Mather-Holgate, Independent Financial Advisor at Swindon-based Mather and Murray Financial, was withering: “This is further proof, if needed, that we have a zombie government who are out of ideas. Stubbornly sticking to idealistic policy, like Rwanda, when the cost of living bites and the economy suffers. The sooner there is a General Election, the better for business, households and the wider electorate.”

Graham Cox, founder at the Bristol-based broker, Self-Employed Mortgage Hub, also said that the Government has got its priorities wrong: “It’s never a good idea to read too much into one month’s figures. Nevertheless, the 0.3% drop in October’s GDP, mainly driven by contraction in our dominant services sector, suggests we could be heading into recession. An early cut in the Bank of England base rate, is now far more likely in my opinion. Turning the economy around should be the government’s number one focus, not this self-indulgent obsession with small boats.”

For Michelle Lawson, director at Fareham-based broker, Lawson Financial, such weak data could be a Christmas gift for borrowers: “This data shows what a mess the Bank of England have made of the economy. They seemed hell-bent on increasing rates at every opportunity rather than giving time to see what effect previous increases had. It is highly likely we will see base rate cuts in 2024 to attempt to reverse the damage done. This could be the Christmas gift mortgage holders have been waiting for.”

Ranald Mitchell, director at Norwich-based broker, Charwin Private Clients concluded: “The GDP data is not a great read, with the UK’s output shrinking substantially after what has been a difficult year for many. It does signal better news for mortgage borrowers though, as poor economic data could trigger base rate reductions sooner rather than later, and perhaps more of them. 2024 is shaping up to be an improved year for borrowers, but all eyes will be on the ever-changing performance of the economy.”