The UK economy unexpectedly failed to grow in the third quarter

Unlock Editor’s Digest for free

FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.

Chancellor Rachel Reeves has admitted she has a “huge” task to turn around the economy, after growth stalled in the third quarter and business groups warned of a tough start to 2025.

Mel Stride, shadow chancellor, said “the warning lights are on” after the Office for National Statistics said GDP did not grow in the three months to September, below its initial estimate of 0 expansion. .1 percent.

This reflected flat output in the dominant services sector after Labour’s election victory in July, while output fell 0.4 per cent, offsetting a 0.7 per cent rise in the construction sector.

Business groups warn that poor growth looks set to extend into the new year, with Reeves admitting: “The challenge we face in fixing our economy and adequately funding our public finances after 15 years of neglect is enormous.”

Lobby group CBI published survey results on Monday showing most private sector businesses expected activity to fall in the three months to March and were “waiting for the government to boost confidence and give them a reason.” to invest.”

The British Retail Consortium said its latest survey showed there had been a big drop in the public’s spending intentions, leaving retailers facing “a challenging year”. . . hit by low consumer demand and £7bn of new budget costs set to hit industry in 2025.”

If growth falls short of the forecasts made in the Budget, it raises the possibility that the chancellor will need to cut spending or raise taxes next year to ensure she continues to meet her borrowing rules.

Paul Johnson, director of the Institute for Fiscal Studies, warned that the chancellor may need to “go back for money” in her budget in autumn 2025, in what would be a serious blow to Reeves’ credibility.

The government has put boosting growth at the center of its agenda, but now faces the threat that the economy could have contracted in the final quarter of the year.

Stride said Reeves’ “disastrous budget”, which included a £25bn increase in employers’ national insurance contributions, should be reviewed. “Every moment of delay further damages business confidence, production and employment,” he said.

The government’s preferred living standards measures paint a similarly bleak picture. The ONS said on Monday that real GDP per capita fell 0.2 percent quarterly and annually, while early estimates showed household disposable income had stagnated during the second quarter, following growth of 1.4 percent in the three months to June. .

Data released earlier this month showed GDP contracted 0.1 percent in October, the second consecutive monthly contraction.

On Monday, the ONS also revised its growth estimate for the second quarter downwards from 0.5 per cent to 0.4 per cent, indicating the economy began to slow earlier than previously thought.

Recent figures have pointed to a weakening labor market, persistent inflation and falling business confidence.

Last week, the Bank of England predicted zero expansion in the fourth quarter, down from its previous forecast of 0.3 percent growth.

Economists said details of Monday’s downwardly revised GDP data contained some positives: Consumer spending grew at a healthy pace, business investment picked up and households no longer hoarded money in savings.

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 greater drag on net trade.

But the bigger picture was that growth had “stalled”, he said, due to “the persistent drag of higher interest rates, weaker external demand and some concerns about Budget policies”.