Economic Growth Slows to 0.1% Between July and September in the UK
UK economic growth took a hit between July and September compared to the previous quarter, as per official data released, presenting a challenge for Chancellor Rachel Reeves. The Office for National Statistics (ONS) reported that the economy grew by a mere 0.1% during this period, a significant drop from the 0.5% growth seen between April and June. Economists had predicted a growth rate of 0.2%, indicating that the actual figure fell short of expectations. This decline follows the announcement by the Labour government of increased government spending and business taxes in the Autumn Budget last month.
In September 2024, the UK economy is estimated to have contracted by 0.1%, reversing the growth trend observed in the preceding months. This decline can largely be attributed to decreases in factory output and information technology (IT) services. Chancellor Rachel Reeves expressed her dissatisfaction with these figures, emphasising the importance of enhancing economic growth. She stated that the Budget included tough decisions aimed at stabilising public finances and laid the groundwork for future growth through investment and reforms to boost employment and income levels, revitalize the healthcare system, rebuild the nation, and fortify border security.
The services sector, which constitutes a significant portion of the UK economy, saw no growth in September and only a marginal 0.1% growth during the quarter. Factory output experienced a 0.2% decline over the three-month period, driven by a more substantial decrease in September. In contrast, the construction sector expanded by 0.8% during the quarter. Liz McKeown, the ONS’s director of economic statistics, highlighted that while retail and new construction activities performed well, this growth was offset by declines in telecommunications and wholesale sectors. The overall economic growth across various industries remained muted in the latest quarter.
Ben Jones, lead economist at the Confederation of British Industry, attributed the economic slowdown to uncertainty in the lead-up to the Autumn Budget, causing many businesses to postpone spending decisions. He expressed optimism that this deceleration would be temporary and anticipated a return to modest growth in the coming year. However, Jones cautioned that risks to the economic outlook have increased due to prevailing uncertainties. Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, highlighted weak business and consumer confidence as contributing factors to the economic slowdown, suggesting underlying challenges such as poor productivity and supply constraints.
The Bank of England recently decided to reduce interest rates by 0.25 percentage points to 4.75% in early November, with further rate deliberations scheduled for December. Despite the lacklustre economic figures, analysts like Luke Bartholomew, deputy chief economist at Abrdn, suggested that the slowdown may have been influenced by heightened uncertainty preceding the Budget announcement. He noted that while this may have impacted activity growth in September, the subsequent Budget measures are expected to bolster growth and inflation prospects for 2025, potentially influencing the Bank of England’s policy decisions.
In conclusion, the UK’s economic growth slowdown in the third quarter of 2024 underscores the challenges facing the economy, including uncertainties leading up to the Autumn Budget and broader global economic headwinds. As policymakers navigate these complexities, the focus remains on implementing strategies to drive sustainable growth, boost productivity, and navigate evolving domestic and international dynamics to secure a robust economic future for the country.