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.
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.
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