The UK economy grew by just 0.1% in the third quarter of the year, down from 0.5% in the previous quarter, according to the Office for National Statistics (ONS). The slowdown, which marks the first full quarter under the new Labour government, was attributed to uncertainty surrounding the October budget and high interest rates weighing on business and consumer spending.
The ONS reported that services and manufacturing output slowed, with a fall in manufacturing and a lack of work in the IT sector dragging on the economy in September. Month-on-month GDP shrank by 0.1% in September, missing forecasts of 0.2% growth. Business investment rose 4.5% year-on-year, but exports fell for a third consecutive quarter, while imports also declined as consumers cut back on foreign goods.
Chancellor Rachel Reeves said she was “not satisfied” with the numbers, adding that improving economic growth is “at the heart” of her agenda. She defended the budget measures, stating they were necessary to “fix the foundations” and stabilise public finances. However, business groups have criticised the increase in employer national insurance contributions, warning it will deter investment.
Shadow chancellor Mel Stride argued that Labour inherited the fastest-growing economy in the G7, but “because of their choices growth has now slowed significantly”. He claimed the national insurance jobs tax would lead to higher prices and mortgage costs. The UK ranked sixth in the G7 for growth in the third quarter, above Italy but below France, Germany and the US.
Economists noted that the slowdown may be temporary, but downside risks have increased. Ben Jones of the CBI said uncertainty before the budget likely played a big part, while Hailey Low of NIESR called for policymakers to look beyond short-term fixes. The Bank of England cut interest rates to 4.75% in November, but markets see only a 17.5% chance of a further cut in December.
