UK Economy Contracts, Boosting Bank Of England Rate-Cut Bets

The United Kingdom’s economy unexpectedly slipped into contraction in the three months to October, reinforcing expectations that the Bank of England will cut interest rates at its next policy meeting. Official figures released on Friday showed that real gross domestic product fell 0.1% over the August–October period, defying forecasts for flat growth and signaling renewed economic strain.

The downturn was broad-based, with declines in production and construction output, while the services sector—typically the engine of UK growth—stalled after recent slow expansion. This was the first quarterly contraction since late 2023, highlighting underlying weakness in key areas of the economy.

Markets reacted swiftly to the data. Sterling weakened against major currencies as traders increased bets on an imminent rate cut from the Bank of England, now widely expected to ease monetary policy at its upcoming December meeting. UK government bond yields fell as investors repriced expectations for lower interest rates in early 2026.

Weak growth has intensified pressure on policymakers already navigating slow consumer spending, flagging business investment, and elevated political uncertainty tied to the recent budget outlook. With inflation continuing to moderate, the contraction makes a compelling case for BoE action to support growth.

For traders, this data release serves as a key macro catalyst: the heightened probability of a rate cut could continue to influence gilt markets, currency flows, and risk asset positioning heading into year-end and early 2026.