UK Economic Performance Raises Concerns

The UK's economic performance has raised concerns as the Office for National Statistics (ONS) reported a contraction in the October gross domestic product (GDP) by 0.1% month-over-month, according to a report by Deutsche Bank (ETR:DBKGn) Research.

Deutsche Bank's nowcast models indicate a potential negative tail risk emerging for Q4-24 quarterly GDP growth, predicting a range between -0.1% q-o-q to 0.1% q-o-q. The report suggests that the risk of a quarterly contraction is no longer negligible.

> "To be sure, we warned of downside risks in our preview, with our nowcast models pointing to a larger negative tail risk," the report stated.

This marks the fourth GDP disappointment in five months, signaling potential trouble for the economy's growth in the fourth quarter of 2024.

Deutsche Bank expects that the GDP slowdown will significantly impact policies. A lower GDP will hit cash receipts, increasing the risk of a funding shortfall based on the OBR's current projections.

For monetary policymakers, the slowdown in growth may provide some breathing room amidst firming price pressures due to the increase and pass-through of the employer National Insurance Contributions hike.

Looking ahead, October labor data is expected to set the tone for Q4-24 growth. Deutsche Bank anticipates a slowdown in pay momentum while expecting overall employment and unemployment rates to remain broadly unchanged.

Additionally, it expects a 3% drop in job vacancies, which will heighten the risks of contraction in the quarter.

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