UK economy flat-lined in Q3, in new setback for government

Zero growth in UK GDP in Q3 vs previous estimate of 0.1%

By Reuters

Published: Mon 23 Dec 2024, 4:07 PM

Britain’s economy failed to grow during the first three months of Prime Minister Keir Starmer’s new government, official figures showed on Monday, adding to signs of a slowdown that has cast a shadow over his time in office so far.

The Office for National Statistics lowered its estimate for the change in gross domestic product output to 0.0 per cent in the July-to-September period from a previous estimate of 0.1 per cent growth.

The ONS also cut its estimate for growth in the second quarter to 0.4 per cent from a previous 0.5 per cent.

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Starmer and his finance minister Rachel Reeves took power in early July, warning of the poor state of the economy before announcing tax increases for businesses in a budget on October 30 that has alarmed many employers.

Analysts, many of whom said the grim tone of the new government risked slowing the economy, said the numbers suggested zero growth over the entire second half of the year.

The Bank of England last week forecast that the economy would not grow in the fourth quarter. But it kept borrowing costs on hold because of the risks still posed by inflation.

Paul Dales, chief UK economist at consultancy Capital Economics, said the GDP downgrade was caused in part by weaker demand for exports while consumer spending and business investment at home held up.

“Our hunch is that 2025 will be a better year for the economy than 2024,” Dales said.

‘Worst of all worlds’

Philip Shaw, chief economist at Investec, said the economy was only just on course to avoid a recession — defined as two consecutive quarters of economic contraction — but the data raised the likelihood of the BoE cutting interest rates in early 2025.

A separate survey from Lloyds Bank showed confidence among businesses fell to its lowest level of 2024 in December.

Data from the Confederation of British Industry — based on previously released surveys — showed companies expected activity to fall and prices to rise in early 2025.

Alpesh Paleja, a CBI economist, said the figures “suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.”

The government’s hike in social security contributions for employers was exacerbating weak demand, Paleja said.

Reeves said Monday’s GDP data showed she faced a huge challenge “after 15 years of neglect” but that her budget would create sustainable long-term growth.

The Conservatives’ spokesman on the economy said Reeves had to rethink tax increases urgently before they come into effect in April.

“Every moment of delay is further damaging business confidence, output and employment,” Mel Stride said.

The ONS said there was no growth in the services sector in the third quarter. A 0.7 per cent increase in construction was offset by a 0.4 per cent fall in production.

Bars and restaurants, legal firms and advertising were among the weakest sectors in the three months to the end of September.

The data also showed no growth in living standards and that households had dipped into their savings.

The ONS said Britain’s current account deficit shrank to £18.1 billion in the third quarter from £24 billion in the April-to-June period.

The Reuters poll of economists had pointed to a shortfall of £22.5 billion.