The UK economy showed minimal growth in the third quarter of 2024, expanding by just 0.1% between July and September, as uncertainty surrounding the government’s Budget appeared to weigh on businesses and households.
This marked a significant slowdown from the 0.5% growth seen in the previous quarter and has raised questions about Labour’s ability to fulfill its promise of boosting economic growth.
According to the Office for National Statistics (ONS), the economy contracted by 0.1% in September, highlighting a worrying trend. The sluggish performance of the services sector, which accounts for a substantial portion of the UK economy, contributed heavily to the weak figures, growing by only 0.1% in the quarter and remaining flat in September.
Many analysts and business leaders have attributed the slowdown to apprehension ahead of Chancellor Rachel Reeves’ October Budget. Ben Jones, lead economist at the Confederation of British Industry (CBI), noted a “slowdown in decision-making” by firms, which intensified after the Budget was unveiled. The fiscal plan introduced tax hikes on businesses and raised the minimum wage, leading to warnings of price increases and job cuts from major retailers like Marks & Spencer, Sainsbury’s, and JD Sports.
Reeves defended her measures as necessary to stabilize public finances and invest in public services. However, she acknowledged the disappointing growth figures.
“I’m not satisfied with these numbers,” Reeves said.
She also reiterated the government’s commitment to delivering stronger, sustained growth.
Shadow Chancellor Mel Stride criticized Labour’s policies, claiming they had “slowed significantly” the economic recovery.
“Labour made a lot of promises about growth in the election. They need to act now before their broken promises lead to yet more tax rises,” he said.
Liberal Democrat Treasury spokesperson Daisy Cooper echoed these concerns, warning that the tax increases could be the “final nail in the coffin” for struggling small businesses.
Despite the criticism, some economists believe the Budget’s impact on growth may be temporary. Ruth Gregory, deputy chief UK economist at Capital Economics, noted that while the recent figures are “striking,” they do not necessarily signal an impending recession. The Bank of England, meanwhile, projected that the Budget’s spending measures could add 0.75 percentage points to GDP over the next year.
Reeves has emphasized long-term structural changes to boost investment and productivity. These include pension reform aimed at directing more funds into UK businesses and a push for regulatory adjustments to encourage economic growth.
“The UK has been regulating for risk, but not regulating for growth,” she said during a recent announcement.
However, critics argue that the government’s approach has inadvertently dampened consumer and business confidence. Andy Crisp, manager of Vapiano restaurant in Manchester, said he observed a noticeable dip in footfall leading up to the Budget, attributing it to public uncertainty over its implications.
External factors, including geopolitical tensions and the lingering effects of Brexit, continue to challenge the UK economy. Bank of England Governor Andrew Bailey highlighted the “changing trading relationship” with the EU as a persistent drag on growth. Efforts to rebuild relations while respecting Brexit outcomes remain a key area of focus for Prime Minister Keir Starmer’s administration.
The UK’s performance in the G7 group of leading economies has also come under scrutiny. For the third quarter, the UK ranked fifth, trailing the US, France, Germany, and Japan, but ahead of Italy. Analysts have flagged the country’s “staid and stagnant” economic performance in recent years, which has struggled to regain momentum since the global financial crisis and a brief recession in 2023.
Labour’s ambitious goal to make the UK the fastest-growing economy among the G7 faces significant hurdles. While Reeves has pledged to prioritize growth, the recent data underscores the magnitude of the challenge. Simon Pittaway of the Resolution Foundation described the mission as “both extremely hard and absolutely necessary.”
BBC, the Guardian, the Hill, and CNBC contributed to this report.
