UK economy stagnates in third quarter

The UK economy showed no growth in the third quarter of 2024, according to revised figures from the Office for National Statistics (ONS). Initial expectations of a modest 0.1 percent expansion were downgraded, revealing GDP flatlined between July and September. 

The disappointing performance comes as the country grapples with stagnation in its services sector and a decline in production output.

The ONS report, which covers the three months immediately after Labour's new government took office, also revised down the second quarter's growth figure to 0.4 percent, from a previously reported 0.5 percent. The Bank of England added to the gloom by predicting zero growth for the fourth quarter, signaling continued challenges for the UK economy.

Production output emerged as a key drag, contracting by 0.4 percent during the third quarter. This decline was attributed largely to reduced energy supply and a downturn in manufacturing. The UK's dominant services sector, which accounts for the majority of its economic activity, also failed to grow, with its earlier estimate of 0.1 percent expansion revised to zero.

Warning of worsening conditions

The stagnation represents a blow to the Labour government, which has vowed to achieve the fastest economic growth in the G7. Critics point to the Autumn Budget's tax-raising measures, such as a rise in employer National Insurance contributions, as potential factors denting business confidence.

The Confederation of British Industry (CBI) warned of worsening conditions, stating: "There is little festive cheer in our latest surveys, which 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." 

Alpesh Paleja, CBI Interim Deputy Chief Economist, further criticized the Budget's impact on businesses already struggling in a subdued demand environment.

Chancellor Rachel Reeves, acknowledging the scale of the economic challenge, attributed the downturn to "15 years of neglect" under the previous Conservative government. Reeves defended Labour's strategy, emphasizing that their policies were designed to build a foundation for long-term economic growth.

As the UK economy navigates these headwinds, the pressure mounts on policymakers to revive growth and restore business confidence. For now, the nation's economic recovery remains stalled, leaving little room for festive optimism.