The UK economy ground to a near-standstill in the third quarter, growing by just 0.1% amid uncertainty ahead of Labour’s first budget and continued high interest rates. The figure, published by the Office for National Statistics (ONS) on Friday, marks a sharp slowdown from 0.5% growth in the second quarter and dealt a blow to Chancellor Rachel Reeves, who has made boosting growth a central priority.
The services and manufacturing sectors both lost momentum in the three months to September, the first full quarter under the new Labour government. Month-on-month GDP shrank by 0.1% in September, missing expectations of a 0.2% rise, as a fall in manufacturing output and a lack of work in IT offset higher car sales. The UK now ranks sixth among G7 nations for third-quarter growth, ahead of Italy but behind France, Germany and the United States.
Business investment rose 4.5% year-on-year, but the trade deficit widened as exports fell for a third consecutive quarter. Imports also declined as consumers cut back on foreign goods. The ONS noted that the UK’s growing population meant GDP per head fell by 0.1% in the quarter.
Reeves acknowledged the disappointment, stating: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.” She defended her budget, which included a rise in employer national insurance, saying it was necessary to “fix the foundations” of public finances. Shadow Chancellor Mel Stride countered that Labour “inherited the fastest-growing economy in the G7” but had “slowed growth significantly” with its policies.
Business groups warned that the national insurance increase would deter investment. The CBI’s lead economist, Ben Jones, said uncertainty before the budget “probably played a big part” in the slowdown, adding that while a blip was possible, “downside risks to the outlook have increased.” The National Institute of Economic and Social Research cautioned that weak momentum would carry into the fourth quarter.
The Bank of England has cut rates twice this year, most recently to 4.75%, but markets see only a 17.5% chance of another cut in December. Recent surveys show the labour market weakening and consumer and business confidence falling before the budget.
