Why did the UK economic system sluggish within the third quarter, and what does it imply?

Economic progress slowed throughout the UK between July and September, in keeping with the latest official figures.

Chancellor Rachel Reeves has mentioned she is “not satisfied” with the numbers, which confirmed the economic system rising by simply 0.1% within the quarter following Labour’s election win.

But what does this really inform us, and what influence will it have? The PA information company explains.

– What is gross home product?

Gross home product, or GDP, is the time period usually used to explain the scale of a nation’s economic system.

It is the measure of what’s going on financially throughout all firms, governments and households.

Economic progress occurs when households and companies are spending extra money and creating extra jobs, whereas a contraction is when individuals and companies are pulling again spending.

– What occurred?

On Friday, the Office for National Statistics (ONS) mentioned GDP grew 0.1% for the three months to September.

That is just a small enhance, and it comes after the economic system grew 0.5% within the earlier quarter, from April to June.

Things nonetheless look comparatively weak in comparison with the primary half of 2024, when the economic system was bouncing again quick from a recession in late 2023.

Liz McKeown, ONS director of financial statistics, mentioned some sectors like retail and development carried out nicely, however added: “Generally, growth was subdued across most industries in the latest quarter.”

– Why did it decelerate?

Several specialists mentioned the slowdown may have been all the way down to firms holding again on spending selections till after the Budget.

Ben Jones, lead economist on the Confederation of British Industry, mentioned uncertainty within the run-up to the autumn Budget “probably played a big part”, after companies reported a slowdown in making spending selections.

The companies sector, which incorporates issues like retailers, leisure actions, finance companies and plenty of extra, was flat in September, and grew by simply 0.1% through the three-month interval.

Because it’s such a giant a part of the economic system, about 80%, that was a key driver of total GDP.

The development sector noticed 0.8% progress, whereas the smaller manufacturing sector contracted by 0.2%.

– What does this imply for the Government?

Economic progress slowing is normally seen as a nasty factor, and Chancellor Rachel Reeves mentioned she was “not satisfied with these numbers”.

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Plenty of surveys confirmed firms held again on spending within the months earlier than the October Budget, which Ms Reeves repeatedly warned would come with “tough decisions”.

Shadow chancellor Mel Stride mentioned it had been Labour’s “mission to talk down the UK economy”.

But it’s unsure how a lot of the slowdown may be put all the way down to the present Government, which solely got here into workplace a couple of week into July.

Luke Bartholomew, deputy chief economist on the funding big Abrdn, mentioned it’s “also possible that this just represents normal monthly volatility rather than anything more fundamental”.

– Will it have an effect on Labour’s spending plans?

Probably not. Ms Reeves mentioned on Friday morning that she wished progress to “be stronger, to come sooner, and also to be felt by families right across the country”.

And the Budget, through which Labour additionally introduced a £70 billion increase in public spending, got here after the interval lined by these figures.

Sanjay Raja, chief UK economist at Deutsche Bank, mentioned “The road ahead remains bumpy.”

He warned that the tax rises may hit enterprise spending additional earlier than Labour’s spending plans begin having a optimistic influence early subsequent yr.

“We see growth picking up a touch towards year-end. And we still see positive momentum into 2025,” he mentioned.

– What concerning the Bank of England?

The Bank of England’s policymakers can be maintaining a detailed eye on GDP figures to evaluate once they can subsequent lower the bottom rate of interest.

This impacts how costly it’s to borrow cash, and dictates issues like mortgage charges from excessive road banks.

The Bank’s Monetary Policy Committee lower rates of interest by 1 / 4 level to 4.75% in early November, with one other charges resolution coming in December.

But Suren Thiru, economics director on the Institute of Chartered Accountants in England and Wales mentioned that regardless of the “downbeat” figures, one other price lower subsequent month appears “improbable”.

He mentioned price setters will “likely be concerned enough over inflation risks from the Budget and growing global headwinds to resist signing off back-to-back interest rate cuts.”