UK economy barely grows in third quarter

The UK economy grew by only 0.1 per cent in the third quarter, the weakest in more than a year on rising uncertainty over taxes and poor performance in the services sector.
Official figures showed that growth in gross domestic product (GDP) between July and September was below forecasts of 0.2 per cent from the Bank of England and economists polled by Reuters.
It was the weakest pace of quarterly growth since the start of last year and a marked slowdown from the 0.5 per cent recorded in the second quarter.
The slowdown was partly the result of a surprise 0.1 per cent contraction in output in September. Economists had expected GDP to rise by 0.2 per cent in the month.
In a blow to the new government’s attempts to lift growth over the course of the parliament, the pace of expansion has slowed substantially in the second half of the year after the UK recorded the second-fastest expansion in the G7 at the start of 2024.
Rachel Reeves, the chancellor, said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers. At my budget, I took the difficult choices to fix the foundations and stabilise our public finances. Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal.”
The Office for National Statistics said the economy was driven by output in the construction sector, which rose by 0.8 per cent in the three months, but the dominant services sector only expanded by 0.1 per cent over the quarter. Production, which includes manufacturing, declined by 0.2 per cent in the second quarter.
Liz McKeown, director of economic statistics at the Office for National Statistics, said growth was subdued across most industries in the quarter. She said: “In September the economy shrank a little. Services showed no growth with a notable increase in car sales offset by a slow month for IT companies. Production fell overall, driven by manufacturing, though there was an increase in oil and gas extraction.”
The weak figures could prompt the Bank of England to cut interest rates further in the coming months after reducing borrowing costs by a quarter point to 4.75 per cent this month. The Bank had suggested a slower pace of monetary loosening next year due to the short-run inflationary impact of measures announced in last month’s budget. The Bank only carried out one rate cut in the third quarter in August, its first in four years.
In a speech on Thursday, Andrew Bailey, governor of the Bank, warned about the damage to the supply side of the UK economy, such as falling investment and a shrinking labour force, which would act as a brake on future economic growth.
Sanjay Raja, UK economist at Deutsche Bank, said growth would pick up to rise by 0.4 per cent in the final three months of the year, to take the annual growth rate to 1 per cent — up from the 0.1 per cent recorded in 2023, which was accompanied by a mild recession.
“Beyond 2024, budget uncertainty as a result of tax rises — particularly the employer national insurance contributions alongside geopolitical risks emanating from a potential escalation in trade war raise downside risks to growth next year and thereafter,” Raja said. “For now, we see GDP growth next year touching 1.5 per cent before expanding by 1.6 per cent in 2026.”
Economists at Barclays said the drivers of future growth had shifted from an expected rise in consumer spending to more public sector consumption and investment as a result of measures to boost capital expenditure announced in the budget.