Gross domestic product (GDP) in the UK is estimated to have shrunk by 0.1% in October, following a further 0.1% drop in September.

The Office for National Statistics (ONS) said in its latest report that this drop is largely due to a decline in production output.

This is the second consecutive GDP shrink month-on-month, having last increased by 0.2% in August.

However, across the last three months, real GDP is estimated to have increased by 0.1% compared with the three months to July 2024, with growth in the services and construction sectors.

Head of financial analysis at AJ Bell, Danni Hewson, said: "One month doesn’t tell the whole story but when the UK economy shrinks for two months in a row it is cause for concern.

"Think back to the last time the country experienced a double contraction, and you’ll find yourself back in the pandemic when the country was locked down for the first time and no one knew what to expect.

"This double dip is being blamed on the uncertainty created ahead of the budget, with individuals and businesses worried about potential tax rises and unwilling to spend."

In October, production output is estimated to have fallen by 0.6%, following a fall in 0.5% in September.

The ONS said that this was caused by a 0.6% decrease in manufacturing and a fall of 3.1% in mining and quarrying, although it was offset by growth of 1.4% in electricity, gas, steam and air conditioning supply and a 0.5% growth in water supply, sewerage, waste management remediation activities.

Monthly construction output is estimated to have fallen by 0.4% in October, following a 0.1% increase in September, with four out of the nine sectors witnessing decreases.

Private housing repair and maintenance was the main contributor to this decrease, falling by 3.8% in October.

The services sector saw no growth, with seven of the 14 subsectors having increased output, one showing no growth and six showing output decline.

Personal finance analyst at Bestinvest, Alice Haine, concluded: "While the new year typically heralds the arrival of pay rises, those hoping for a bumper Christmas bonus may be disappointed as companies hold back in a bid to keep costs down.

"It means pay growth may suffer in the coming months at a time when household budgets are still reeling from a protracted period of higher living and borrowing costs following the pandemic. Add in the hit from the long freeze to personal tax thresholds and more people will find themselves paying higher rates of tax as their income increases.

"Consumer confidence has been knocked sideways since the new Government first warned it would need to make ‘painful’ policy changes to get the country’s finances on track. It means Christmas, typically a lucrative period for the economy, may be a more restrained affair as consumers budget carefully rather than lavish the cash on festive fun to protect their finances against any further hits from higher prices, lower end-of-year bonuses or job cuts."

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