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The UK financial system didn’t develop within the third quarter, within the newest blow to a authorities already beneath fireplace from companies for its tax-raising Price range.
GDP didn’t register any progress within the three months to September, the Workplace for Nationwide Statistics mentioned on Monday, down from its first estimate of a 0.1 per cent enlargement.
The financial system was held again by the dominant companies sector, which stagnated over the quarter. Manufacturing output fell 0.4 per cent, offsetting a 0.7 per cent enhance within the building sector.
The figures present the financial system stalled within the instant aftermath of Labour’s July election victory, even earlier than chancellor Rachel Reeves’ Price range dented enterprise confidence.
Reeves on Monday admitted that the federal government confronted a “large” problem however insisted that the Price range had laid the foundations for long-term progress.
If progress undershoots forecasts made within the Price range, it raises the prospect that the chancellor could must ship spending cuts or greater taxes subsequent 12 months to make sure she continues to satisfy her borrowing guidelines.
“The problem we face to repair our financial system and correctly fund our public funds after 15 years of neglect is large,” Reeves mentioned. “However that is solely fuelling our fireplace to ship for working individuals.”
The federal government has put boosting progress on the coronary heart of its agenda, however now faces the menace that the financial system might have contracted within the closing quarter of the 12 months.
In one other signal of the financial system’s weak point, the ONS additionally revised its estimate for second-quarter progress down from 0.5 per cent to 0.4 per cent.
Current figures have pointed to a softening within the jobs market, cussed inflation and falling enterprise confidence. GDP shrank 0.1 per cent in October, the second straight month-to-month contraction.
The Financial institution of England final week predicted zero enlargement within the fourth quarter, down from its earlier forecast of 0.3 per cent progress.
Paul Dales, on the consultancy Capital Economics, mentioned the downward revision within the third quarter was “primarily as a consequence of exterior influences moderately than the home financial system”, together with an even bigger drag from internet commerce.
However he mentioned the general image confirmed progress had “floor to a halt . . . as a consequence of a mixture of the lingering drag from greater rates of interest, weaker abroad demand and a few issues over the insurance policies within the Price range”.
Economists mentioned the main points of the downward revisions for the third quarter have been much less worrying than the general image, nonetheless, with enterprise funding selecting up, shopper spending nonetheless rising at a wholesome tempo, and households now not piling extra money into financial savings.
Elliott Jordan-Doak, senior UK economist on the consultancy Pantheon Macroeconomics, mentioned the revision wouldn’t change the BoE’s pondering on rates of interest, as a lot of the weak point had been in authorities spending and would “fade away” subsequent 12 months.
Final week Andrew Griffith, shadow enterprise secretary, claimed the UK was heading for a “January of discontent” and the potential for a recession. He mentioned if there was a recession it might be “made in Downing Road”.
