The UK economy expanded by just 0.1% in the third quarter of 2024, falling short of the 0.2% growth forecast by economists and marking a slowdown from the 0.5% increase recorded in the second quarter.
The latest GDP figures, released by the Office for National Statistics (ONS), revealed weakening momentum in the UK’s dominant services sector.
In its first estimate of activity for the three months to September, the ONS reported that output from both the services and manufacturing sectors had eased. The slowdown has been attributed to lingering uncertainty surrounding the new Labour government’s budget and persistently high borrowing costs.
The services sector, which contributes roughly 80% of UK GDP, grew by just 0.1% during the quarter while construction grew 0.8% and production fell by 0.2%.
ONS director of economic statistics Liz McKeown said: “The economy grew a little in the latest quarter overall as the recent slowdown in growth continued. Retail and new construction work both performed well, partially offset by falls in telecommunications and wholesale. Generally, growth was subdued across most industries in the latest quarter.
“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.”
Labour, which came to power earlier this year, has positioned economic growth as a key policy priority. However, the lacklustre data highlights the difficulties of achieving this ambition in the face of fiscal constraints and subdued private-sector activity.
Last month’s budget saw the chancellor increasing taxes and borrowing in a move Labour defended as necessary to stabilise public finances and improve services. The measures included a hike in employers’ national insurance contributions, which many businesses argue could dampen job creation and discourage investment.
Reeves said she is “not satisfied” with Friday’s GDP figures showing the economy slowed over the summer. She stated: “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.
Chancellor Rachel Reeves delivers her first Mansion House speech. ·ISABEL INFANTES via Getty Images
“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.”
Meanwhile, the Bank of England has lowered interest rates twice this year, with the latest cut bringing rates down to 4.75%. However, borrowing costs remain elevated compared to pre-pandemic levels, keeping pressure on UK households and businesses.
Prime minister Keir Starmer pledged last year that a Labour government would make Britain the fastest growing economy in the G7 as one of his five long-term visions for the country. However, today’s GDP report shows that the UK is sitting towards the bottom of the G7 for growth over the summer.
The Resolution Foundation said this slowdown puts UK growth over the first three quarters of the year at 1.3%, behind the US (1.9%) but ahead of France and Italy (0.8% and 0.4%), with Canada set to stay just behind the UK based on current forecasts.
Simon Pittaway, senior economist at the Resolution Foundation, commented: “After bouncing back from recession earlier this year, Britain’s recovery is already running out of steam. The UK has fallen below the US at the top of the G7 GDP growth leaderboard, with growth slowing, wage rises shrinking and employment starting to fall.”
Lindsay James, investment strategist at Quilter Investors, blamed ‘gloomy messaging’ from the government in the run-up to the budget.
She said: “With the budget now firmly in the rearview mirror and the chancellor reinvigorating her message of growth with the Mansion House speech, today’s quarterly GDP figures highlight the malaise the UK still finds itself in. Despite good momentum early this year, growth has stumbled once again, growing just 0.1% over the last three months, with September actually seeing a contraction.
“Much of this will have been as a result of the gloomy messaging that was persistent in the run up to the budget, causing consumers and businesses to pause spending and await what pain was to come.”
NIESR associate economist Hailey Low said the figures “reflect the impact of pre-budget uncertainty”.
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