Chancellor Rachel Reeves is facing mounting pressure as the UK economy grew by just 0.1% in the third quarter, raising concerns that her upcoming autumn budget could exacerbate the slowdown. The weak growth, partly attributed to a cyber-attack on Jaguar Land Rover (JLR), has intensified debate over the government's fiscal strategy.
Reeves is expected to announce tax rises and spending cuts on 26 November to address a projected £30bn shortfall against her fiscal rules. However, economists warn that such consolidation could further squeeze economic activity, creating a 'doom loop' where weaker growth undermines public finances. The economy shrank in September and flatlined in August, with real GDP per head showing no growth in the latest quarter.
Consumer-facing services output fell by 0.1% in the July-to-September period, while business investment dropped by 0.3%. Export volumes also declined. The chancellor has touted a pro-business environment, but the employers' national insurance increase from last year's budget has weighed on hiring and added to costs amid sticky inflation and subdued demand.
The JLR cyber-attack caused a 28.6% collapse in car industry output in the third quarter, shaving 0.16 percentage points from GDP. The government provided a £1.5bn loan guarantee to JLR, though it was not used as the company paid suppliers upfront. Despite the slowdown, the UK remains the fastest-growing G7 economy after the US, according to the IMF.
With unemployment at a four-year high and inflation near double the Bank of England's target, expectations are growing for an interest rate cut in December. Reeves faces pressure from within Labour to deliver growth-enhancing measures, but an expansive package is unlikely given fiscal constraints. She must navigate these challenges to rebuild confidence when she presents the budget later this month.
