Is the economic contraction unexpected? Really?

[lizbarclaybiz]

The UK economy shrank by 0.1 per cent in October according to the Office for National Statistics (ONS). That’s on top of the 0.1% decline in September. There was no growth in August. The economy hasn’t grown since June. For a Government that put so much emphasis on the need for the economy to grow so that there’s money to spend of public services that’s not a good look.
However, the word that’s been exercising me in the headlines is ‘unexpectedly’. Apparently, the fall was unexpected. Most economists were expecting to see a rise of 0.1 per cent for October, driven by Jaguar Land Rover’s recovery after the cyber attack on it in August which hit the manufacturing sector hard.
I’m not an economist but as a business journalist I could often be heard to remark that if you asked 40 economists for their forecasts, you’d get 40 different assessments. So why then were economists apparently agreeing on the likelihood of growth? I think it’s because they are fixated on, and talking to, the wrong companies. The small and micro firms in the UK are the bellwether. What’s happening on the high streets, the industrial estates and on the other sector frontlines is where forecasts would be more accurately based. We’re in an economic mess with quiet quitting of small businesses going on all over the UK. Small business owners when asked are fairly optimistic about their own prospects next year but not about the wider economic picture or about the ecosystems they’re working in.
The budget didn’t help, piling on the agony after the wages and NIC rises in April 2025. The shenanigans before the budget with the kite flying and leaks of supposed definite changes to be announced in the budget exacerbated the situation. Business owners kept their hands firmly in their pockets even if they did have money to spend, because of the uncertainty.
I’d love to see the counter factual calculation that could show what the growth figure would have looked like had the seeds of uncertainly not been so widely and so frequently spread around the business community.
The budget itself was a damp squib in terms of encouragement for businesses to get their hands out of their pockets and invest to grow. Small and micro owners, despite all the derogatory talk about lack of ambition for growth and productivity would love to adopt technology, hire talented people, reskill and upskill and grow. They need to feed families who are facing a cost of living crisis that’s been hanging around for years and they need to tackle their own cost to doing business crisis that’s been holding them back since 2008.
We need support, radical solutions and a real voice at the table when the economists and politicians are musing about their forecasts and policies. The smallest businesses get the least air time but that’s the place to start.
Given that there was next to nothing in the budget for the biggest business sector, the 0-50 employee businesses that provide 47% of the employment in the private sector, contribute £1,8trillion of our UK income and are the biggest innovators and job creators in good times, the budget needed to be radical, growth-focused and ambitious. Even the crumbs of good news, like more money for the British Business Bank to lend, weren’t new.
We’re not growing, investing creating jobs and fewer of us are exporting. If you make it this hard for the small business owners, who are renowned for getting going when the going gets tough then you should be expecting the economy to reduce rather than grow. We need the government to understand the needs of small business, entrepreneurs, the risk-takers and reward them, encourage them, incentivise them and get their help to build a clear plan for growth. Only then, and of course I’m not an economist so what would I know, will we get 3 or 4% growth and that growth will lead to further growth. I do know that you have to build from the bottom up rather than the top down. Trickle down has been shown not to work. Trickle up can, with the will and the power, experience and innovation of our smallest businesses.