Deconstructing the possible impacts of a slowdown in UK economic growth

Economic maturation slowed crossed the UK betwixt July and September, according to the astir caller authoritative figures.

The UK's economical maturation slowed betwixt July and September, according to the latest authoritative figures.

Chancellor Rachel Reeves expressed her dissatisfaction with the numbers, which revealed a specified 0.1% maturation successful the 4th pursuing Labour’s predetermination victory. But what does this mean, and what volition beryllium its impact?

What is gross home product?

Gross home product, oregon GDP, is simply a word commonly utilized to denote the size of a country’s economy. It measures the fiscal activities crossed each companies, governments, and households. Economic maturation occurs erstwhile households and firms walk much wealth and make much jobs, portion a contraction happens erstwhile spending is reduced.

What happened?

On Friday, the Office for National Statistics (ONS) reported that GDP grew by 0.1% successful the 3 months starring up to September. This tiny summation follows a 0.5% maturation successful the erstwhile quarter, from April to June.

Compared to the archetypal fractional of 2024, erstwhile the system was rapidly recovering from a recession successful precocious 2023, things inactive look comparatively weak. Liz McKeown, ONS manager of economical statistics, noted that immoderate sectors similar retail and operation performed well, but overall, "Generally, maturation was subdued crossed astir industries successful the latest quarter."

Why did it dilatory down?

Several experts person suggested that the slowdown could beryllium owed to companies delaying spending decisions until aft the Budget. Ben Jones, pb economist astatine the Confederation of British Industry, believes that uncertainty starring up to the autumn Budget "probably played a large part", arsenic firms reported a deceleration successful making spending decisions.

The services sector, encompassing areas specified arsenic shops, leisure activities, concern firms and more, remained stagnant successful September, increasing by a specified 0.1% implicit the three-month period. Given its important publication to the economy, astir 80%, this was a cardinal operator of wide GDP. The operation assemblage experienced 0.8% growth, portion the smaller accumulation assemblage contracted by 0.2%. .

So, what does this mean for the Government?

Typically, slowing economical maturation is viewed negatively, and Chancellor Rachel Reeves expressed her dissatisfaction with these figures. Several surveys indicated that companies curtailed spending successful the months starring up to the October Budget, which Ms Reeves repeatedly warned would entail "tough decisions".

Shadow chancellor Mel Stride accused Labour of having a "mission to speech down the UK economy". However, it remains unclear however overmuch of the slowdown tin beryllium attributed to the existent Government, which lone assumed bureau successful aboriginal July. Luke Bartholomew, lawman main economist astatine concern elephantine Abrdn, suggested that it's "also imaginable that this conscionable represents mean monthly volatility alternatively than thing much fundamental".

Will it impact Labour’s spending plans?

Probably not. Ms Reeves expressed connected Friday greeting her tendency for maturation to "be stronger, to travel sooner, and besides to beryllium felt by families close crossed the country". Moreover, Labour's announcement of a £70bn summation successful nationalist spending was made aft the play these figures cover. Deutsche Bank's main UK economist, Sanjay Raja, commented, "The roadworthy up remains bumpy."

He cautioned that the taxation hikes could dampen concern business adjacent much earlier Labour's spending initiatives statesman to positively power the system aboriginal adjacent year. "We spot maturation picking up a interaction towards year-end. And we inactive spot affirmative momentum into 2025," helium added.

What astir the Bank of England?

The Bank of England's decision-makers volition scrutinise GDP statistic intimately to find the timing for the adjacent basal involvement complaint cut.

This complaint influences borrowing costs, including owe rates offered by mainstream banks. In aboriginal November, the Bank's Monetary Policy Committee reduced involvement rates by a 4th constituent to 4.75%, with different determination owed successful December.

However, Suren Thiru, economics manager astatine the Institute of Chartered Accountants successful England and Wales, suggested that contempt the "downbeat" figures, a complaint chopped adjacent period seems "improbable". He mentioned that the complaint setters are "likely acrophobic capable implicit ostentation risks from the Budget and increasing planetary headwinds to defy signing disconnected back-to-back involvement complaint cuts."