Today’s news that the UK economy unexpectedly shrank by 0.3% in October will send a shiver down the spine of not only the Treasury but also Number 10.
As we know, 2024 is almost certainly an election year and the Bank of England is already warning of a 50-50 chance of a recession.
On December 22, the last quarterly GDP figures will be revised – today’s numbers means this key growth statistic could be revised into negative territory.
The UK will formally be in recession if this happens again in February.
Politics live: New low for Sunak with dismal poll
The uncertainty of how bad the economy will now be is a big problem for the number 10 as it tries to figure out what to do next.
There is division at the heart of the government over when to call an election – with some thinking it is madness to go before October, while others that close Rishi Sunak want him to go in May.
All this is based on the idea that the timing is in his control – events or the Tory party can still force his hand.
But an important part of this is when to stick to the budget.
The Ministry of Finance’s figures strongly downplay – but do not rule out – a February budget, although there are some in the government who think it is a good idea.
They argue that in a February budget there will be less uncertainty about the amount of “headroom” the government has – allowing it to predict with greater certainty how much extra money can be given away in tax cuts.
Others believe that this “headroom” number – the wiggle room the government can borrow before breaking its fiscal rules – will be better for them in February than in March.
Given that they have to present a positive economic story, regardless of the underlying numbers, this approach may soon look quite attractive.