The UK economy shrank for a second straight month in October.

Britain’s economy shrank for a second month in a row in October as concerns about the budget continued to weigh on confidence.

Official data showed a 0.1 percent drop, despite expectations that the economy would return to growth after a slump in September.

The Office for National Statistics (ONS) said activity was stagnant or reduced, with pubs, restaurants and retail among the sectors reporting “weak months”.

Chancellor Rachel Reeves said the figure was “disappointing”, but added: “We have put policies in place to deliver long-term economic growth.”

Shadow chancellor Mel Stride said: “This slowdown in growth shows the severe impact of the chancellor’s decisions and constant talk on the economy.”

KPMG chief economist Yale Selfin said “uncertainty ahead of the budget on October 30 had dampened activity” as businesses and consumers held back on spending.

But some industries, such as real estate, law firms and accountancy, moved ahead with work before Reeves announced the budget, the ONS said.

According to Capital Economics, the economy has grown just once in the past five months, and by 0.1% less than before Labor won the election in July.

“It shows that it’s not just the budget that’s holding the economy back,” said Paul Dales, Capital’s chief UK economist.

“Instead, the drag from higher interest rates may last longer than we think.”

The Bank of England has cut interest rates twice this year but, at 4.75%, they are still relatively high compared to recent years.

The bank will meet next week for a final interest rate decision for 2024, although it is not expected to cut borrowing costs again until next year.

Simon Wells, HSBC’s chief European economist, cautioned against putting too much emphasis on the reading for October.

He told the BBC’s Today program that this was a preliminary estimate of economic growth by the ONS and could be “heavily revised”.

“So just because it’s -0.1% today doesn’t mean it will when more data comes in a few months.”

During the three months to October, the economy grew by 0.1 percent.

The manufacturing industry recorded the largest decline in activity in October, down 0.6 percent, followed by construction, which fell 0.4 percent.

Meanwhile, the services sector, which makes up the bulk of the UK economy, stagnated with zero growth.

Rick Giglio, owner of menswear shop Twisted Fabric in Hitchin, Hertfordshire, said “people are still wary”, adding that prices are still relatively high.

“It’s just a drop in inflation and consumers are feeling the price hike,” he said.

Mr. Giglio also said retail sales were sluggish due to the wetter-than-normal summer months.

“It’s been tough,” he said. “2024 has been very, very difficult for small businesses in general and we just want to hear more good news, not bad news.”