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

LONDON: Britain’s economy failed to grow in the third quarter, official figures showed on Monday, adding to the signs of a slowdown that has cast a shadow over Prime Minister Keir Starmer’s new government.

The Office for National Statistics lowered its estimate for the change in gross domestic product output to zero 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. 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 Oct 30 that has alarmed many employers.

Analysts said the numbers suggested the economy had ground to a halt over the entire second half of the year.The Bank of England last week forecast that the economy will show zero growth 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 at home held up. “Our hunch is that 2025 will be a better year for the economy than 2024,” Dales said. “But more recent data suggest the economy doesn’t have much momentum as the year comes to a close.”

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 in the first three months of 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” under previous Conservative-led governments but that her budget would create sustainable long-term growth.

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 as well as legal firms and advertising were among the weakest sectors in the three months to the end of September, it said.

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 pounds in the third quarter from 24 billion pounds in the April-to-June period. The Reuters poll of economists had pointed to a shortfall of 22.5 billion pounds.