UK Economy Shrinks: October 2024

Following on from our recent news piece covering UK business activity declining in November 2024 for the first time in 13 months, more grim news has come out about the state of the UK economy – and business owners both big and small should take heed. In October 2024, new figures published today (December 13th) have revealed, the UK economy was actually shrinking. This follows a trend from September 2024, which also declined by 0.1%. ONS figures released for October show the same decline of 0.1%. 

Whilst certainly unsettling for the UK economy to be declining month on month, you’ll probably wonder what this means for businesses in the country, how you can react to create positive change in the future, and what competitive advantage, if any, you can get during a seemingly ever-shrinking economic downturn.

Today, our experts at Real Business will answer these questions to try and put the news in context.

First Off, Is The Decline A Shock?

Yes, actually, economists had expected an overall positive figure with some areas declining and others making up the shortfall, but a negative top-line figure was certainly predicted by very few financial experts. And economists were predicting the opposite for good reason – not since the COVID pandemic have we seen two consecutive months of declining economic conditions.

What Does A Shrinking Economy Mean For UK Businesses?

Whilst it is initially shocking, it’s worth putting things into perspective as a business owner. Ultimately, the shrinking figure of 0.1% is still small, and some areas of the economy will inevitably have seen growth in October if you were to explore the individual sectors and industries that are covered within the full ONS report.

However, the UK economy shrinking overall will be news that inevitably effects business activities and consumer behaviour – no matter how small the decline.

Generally, a shrinking economy isn’t great for business as it can lead to less spending. If fewer customers are buying your products and services then you’ll inevitably feel it. But since the economic decline is so small and Christmas is around the corner, you might actually not feel the pinch as suddenly as you otherwise might have done during a different time of year.

How Can UK Businesses React To Another Month Of A Declining Economy?

A typical business response is to cut costs when the economy turns downward, especially if that turn is consistent as it has been now for 2 months. However, we’d recommend a cautious response. Layoffs and such are typical when the downturn is significant and the economy volatile – but that can hardly be used to describe the current state of the UK economy.

You might consider reducing production targets somewhat as spending decreases, especially in the New Year, just to protect yourself from excessive expenditure that’s unnecessary. As a business owner, it’s wise to be cautious when the economy shrinks, but there’s no need to react too harshly just yet. Be ready, and keep up to date with the latest news, but don’t react with a knee-jerk response.

Are There Any Competitive Advantages To Be Found?

Whilst a declining economy is disappointing for businesses, there is a chance for you to use the current economic conditions for your own good.

When an economy shrinks, spending falls, and customers tend to want to buy less. But this gives you the chance to review processes as a business to streamline efficiencies and increase productivity. Now is a great time to look at how you market to customers.

At the end of the day, you’ll want to encourage customers to spend, even in a shrinking economy, because this is what will cause the economy to grow again. Marketing to reluctant spenders is a tough task, but if you can do it and invest in the right marketing strategies and techniques, then you’ll be able to use these again when the economy takes a turn for the better, giving you a competitive advantage over your competitors.

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