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Britain’s economy failed to grow in the third quarter, the latest blow to a government already under fire from businesses over its tax-hiking budget.
GDP showed no growth in the three months to September, the Office for National Statistics said on Monday, below the first estimate of a 0.1 percent expansion.
The economy was held back by the dominant services sector, which stagnated during the quarter. Production output fell by 0.4 percent, compensating for a 0.7 percent increase in the construction sector.
The figures show the economy faltered in the immediate aftermath of Labor’s election victory in July, even before Chancellor Rachel Reeves’ Budget hit business confidence.
Reeves admitted on Monday that the government faces a “huge” challenge, but stressed that the budget laid the foundation for long-term growth.
If growth falls short of forecasts made in the budget, it increases the likelihood that Reeves may have to make spending cuts or higher taxes next year to ensure it continues to comply with its lending rules.
“The challenge we face to repair our economy and adequately fund our public finances after 15 years of neglect is huge,” she said. “But that only fuels our fire to do something for working people.”
In a further sign of economic weakness, the ONS also revised its estimate for second-quarter growth to 0.4 percent from 0.5 percent.
The government has put boosting growth at the heart of its agenda but now faces the risk that the economy could contract in the final quarter of the year.
Recent figures point to a weakening labor market, stubborn inflation and a declining business climate. GDP contracted 0.1 percent in October, the second straight monthly decline.
The Bank of England last week forecast zero growth in the fourth quarter, below its previous forecast of 0.3 percent growth.
Paul Dales of consultancy Capital Economics said the downward revision in the third quarter was “mainly due to external influences rather than the domestic economy”, including a larger drag on net trade. But he said the overall picture shows that growth has “stopped.” . . due to a combination of continued pressure from higher interest rates, weaker external demand and some policy concerns in the budget.”
Economists said the details of the third-quarter downward revisions were less worrisome than the bigger picture, with business investment picking up, consumer spending still growing at a healthy pace and households stopping putting more money into savings.
Elliott Jordan-Doak, senior UK economist at consultancy Pantheon Macroeconomics, said the revision would not change the BoE’s thinking on interest rates as much of the weakness had been in government spending and would “disappear” next year.
Last week, Shadow Business Secretary Andrew Griffith claimed that Britain was heading for a “January of discontent” and the possibility of recession. He said if there was a recession it would be “made in Downing Street”.
