Rachel Reeves has said she is “not satisfied” after official figures showed economic growth slowed in the months after Labour won the election, and even contracted in September.
The UK economy grew by 0.1 per cent between July and September, versus 0.5 per cent growth in the previous quarter, the Office for National Statistics (ONS) said.
The estimate was behind economists’ predictions of 0.2 per cent and covers the months before the October Budget, in which Labour unveiled a rise in spending and business taxes.
It comes as a blow to the government, which has made growth a key part of its pitch to the general public, a strategy which helped the Labour Party win by a landslide in July.
The Chancellor said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.”
Speaking to reporters on Friday, Reeves added that she wanted growth to “be stronger, to come sooner, and also to be felt by families right across the country”.
Prime Minister Sir Keir Starmer said growing the economy is the “single most important thing for this government” and that slow growth under the Conservatives held the country back.
‘Subdued growth’
“I want better than the figures today and I think there are early signs that we’re turning it around,” he told reporters in North Wales.
“We had a big investment summit just a few weeks ago and over £60bn of inward investment came out of that. I want more of that investment, because that then translates into good, well-paid jobs and people feeling better-off.”
Liz McKeown, ONS director of economic statistics, said some sectors like retail and construction performed well, but added: “Generally, growth was subdued across most industries in the latest quarter.”
The economy is estimated to have contracted by 0.1 per cent in September. Several experts said the slowdown could have been down to companies holding back on spending decisions until after the Budget.
In the run-up, Reeves repeatedly warned that the Budget would contain “tough choices”. The statement itself, in which Labour announced a rise in employer taxes to help fund a boost in public spending, came after the period covered by these figures.
Ben Jones, lead economist at the Confederation of British Industry (CBI), said uncertainty ahead of the Budget “probably played a big part”, after firms reported a slowdown in making spending decisions.
The services sector, which makes up the bulk of the economy, was flat in September, and grew by just 0.1 per cent during the three-month period.
‘Talking down the economy’
Factory output fell 0.2 per cent over the quarter, driven by a larger decline in the month of September, while the construction sector grew 0.8 per cent over the quarter.
Shadow chancellor Mel Stride blamed the government for talking down the economy after winning the election, and said it was “reaping, to a degree, what they’ve done”.
Stride also pointed out that the government had followed up with a Budget that ramped up taxes which “are going to bear down on growth”.
Labour’s public spending increases, which amount to roughly £70bn per year, according to the Office for Budget Responsibility (OBR), are projected to boost economic growth over the next two years, relative to previous forecasts.
Sanjay Raja, chief UK economist at Deutsche Bank, said: “The road ahead remains bumpy.”
He warned that the tax rises could hit business spending further before Labour’s spending plans start having a positive impact early next year.
Rate cut ‘improbable’
“We see growth picking up a touch towards year-end. And we still see positive momentum into 2025,” he said.
“But downside risks are brewing. Geopolitical risks are on the rise with the spectre of a trade war looming.”
The GDP figures also follow Bank of England (BoE) policymakers’ decision to cut interest rates by a quarter point to 4.75 per cent in early November, with another rates decision coming in December.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said that despite the “downbeat” figures, another rate cut next month looks “improbable”.
He said rate-setters will “likely be concerned enough over inflation risks from the Budget and growing global headwinds to resist signing off back-to-back interest rate cuts”.
The Bank also forecast extra public spending will boost economic growth by 0.75 percentage points at its peak in a year’s time, relative to previous forecasts published in August.
Press Association – Alex Daniel