(Bloomberg) -- The UK economy failed to grow in the third quarter, according to revised estimates that suggest the slowdown has been sharper than expected since Labour took office.
Gross domestic product was unchanged in the three months through September, the Office for National Statistics said Monday, a downgrade from its previous estimate of 0.1% growth. Economists had expected no revision. The second quarter was also weaker than thought with growth of 0.4% rather than 0.5%.
The figures deliver a further blow to Prime Minister Keir Starmer, who came to power promising to boost growth and living standards. Instead, the economy has weakened dramatically after outpacing Group of Seven peers in the first half, with businesses and consumers blaming gloomy rhetoric about the state of the public finances and big tax rises announced in the Oct. 30 budget. On a per capita basis, GDP fell 0.2% in the third quarter.
On Monday, the Confederation of British Industry warned of a “steep” decline in private-sector activity in the next three months, citing the impact of the £26 billion ($32.7 billion) increase in employer payroll taxes.
In a statement following the GDP figures, Chancellor of the Exchequer Rachel Reeves pointed the finger at the previous Conservative government. “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge,” she said. The pound was little changed against the dollar following the release at $1.2565.
The Bank of England is now predicting the economy recorded zero growth in the final three months of the year and purchasing-manager surveys paint a gloomy picture.
“After a bumper first half of the year, the economy ground to a halt in the second half of the year due to a combination of the lingering drag from higher interest rates, weaker overseas demand and some concerns over the policies in the budget,” said Paul Dales, chief UK economist at Capital Economics. “More recent data suggest the economy doesn’t have much momentum as the year comes to a close.”
The ONS also said real household disposable incomes per head were flat in the third quarter, failing to grow for the first time in a year. The savings ratio — the amount of disposable income that people choose not to spend — edged down from a three-year high of 10.3% in the second quarter to 10.1%. That’s still well above levels seen before the pandemic, suggesting consumers remain cautious.
Labour has promised to deliver the fastest sustained growth in the G-7 — a pledge economists see as ambitious. Previously released data show the economy contracting in both September and October.
Economic headwinds may build in 2025 given the threat of a trade war sparked by US President Elect Donald Trump and the fallout from the budget.
The ONS said there was no growth in the services sector in the third quarter and a 0.4% fall in industrial production, offsetting a 0.7% increase in construction. Liz McKeown, ONS director of economic statistics, said bars and restaurants, legal firms and advertising were performing less well than had been thought.
Consumer spending may become a bigger drag or provide a boost to the UK economy in 2025, depending on whether households decide to unleash large excess savings. While falling interest rates may persuade many to spend more, signs of another tumultuous year for politics at home and abroad may entrench caution.
The UK stands in stark contrast to the US, where the willingness of consumers to run down precautionary savings has powered the strongest economic growth in the G-7. US consumer spending is now around 14% above its pre-pandemic levels. In the UK, it remains barely higher.
Separate figures showed the current-account deficit excluding precious metals, the difference between money leaving the UK and money coming in, widened to £20 billion in the third quarter — equivalent to 2.8% of GDP. The deterioration from £17.9 billion in the second quarter came as the trade gap widened slightly and foreign investors saw a big increases in the UK earnings.
--With assistance from Mark Evans and Joel Rinneby.
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