The UK economy experienced a significant slowdown in the third quarter of 2024, with growth tapering to just 0.1%, a sharp decline from 0.5% in the previous quarter, as per data from the Office for National Statistics (ONS). The slowdown marks a challenge for Chancellor Rachel Reeves in her first quarter under Labour, with high interest rates and budget uncertainties impacting business and consumer spending.
Details of Economic Struggles
The latest ONS figures revealed that the services and manufacturing sectors lost momentum in the lead-up to the budget, reflecting the economic uncertainty under the new Labour government. Month-on-month GDP contracted by 0.1% in September, falling short of the 0.2% growth forecasted by economists. A drop in manufacturing output and weaker performance in the IT sector contributed to the slowdown, partially offset by an increase in car sales.
Business Investment and Trade Woes
While business investment rose by 4.5% compared to the same period in 2023, the UK’s trade balance continued to deteriorate with a third consecutive drop in exports. Imports also fell, as consumers cut back on purchasing foreign goods.
Chancellor Rachel Reeves expressed dissatisfaction with the numbers, highlighting her commitment to driving economic growth: “Improving economic growth is at the heart of everything I am seeking to achieve,” she stated. In contrast, Shadow Chancellor Mel Stride criticized the government’s policies, arguing that Labour’s national insurance increases will burden businesses, fuel inflation, and slow growth.
Rising Costs and Political Reactions
The report’s release coincided with growing concerns over rising employer national insurance contributions set to take effect in April 2025, a move that business groups argue could hinder investment. The ONS also reported a 0.1% decline in GDP per capita due to the growing population.
Ben Jones of the Confederation of British Industry (CBI) noted that uncertainty ahead of the budget likely contributed to the economic slowdown, with many firms reporting delays in decision-making. He remains cautiously optimistic, suggesting the downturn may only be temporary: “Hopefully this will prove to be a blip. We still expect the economy to return to modest growth in the year ahead.”
Bank of England's Stance and Future Projections
Despite two interest rate cuts this year, bringing rates down to 4.75%, borrowing costs remain high compared to pre-Covid levels. Luke Bartholomew, deputy chief economist at abrdn, emphasized that while the extent of the slowdown was surprising, the recent budget may still boost growth and inflation expectations for 2025. He anticipates further gradual rate reductions, with the next cut expected early next year.
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