The UK economy recorded no growth in the third quarter of 2024, revised statistics from the Office for National Statistics showed. This marks a flat performance that is, yet another test faced by Prime Minister Keir Stammer’s government. The ONS took its initial estimate of 0.1% GDP growth for the July-to-September period down to 0.0%, marking stagnation.
The report also brought down the growth estimate for the second quarter to 0.4% from 0.5%, putting an image of an economy losing steam during the last half of the year. The analysts now predict zero growth in the economy for the entire second half of 2024.
Economic Challenges Mount
Prime Minister Starmer and Finance Minister Rachel Reeves took over in July 2024 and found a fragile economy. Their October budget had provisions which included business tax increases as measures to deal with long-term fiscal problem but have kept employers in limbo, potentially slowing down economic activity.
The BoE, nonetheless, chose to maintain borrowing rates at their present level despite there being no recorded growth of GDP in the fourth quarter. Weakened export demand partly explains the stagnation in Q3, but domestic consumer spending and business investment are stable.
“Our outlook for 2025 is a bit brighter, with modest improvements expected,” said Paul Dales, Chief UK Economist at Capital Economics.
Business Confidence at Low Ebb
Adding to the worries, business confidence in the UK fell to the lowest level of 2024 in December, a Lloyds Bank survey said. Meanwhile, the Confederation of British Industry reported that companies expect reduced activity and rising prices in early 2025.
According to the economist of CBI, Alpesh Paleja, this is the worst-of-all-worlds situation: firms expect reductions both in output and in hiring. He also talks of increasing employer costs, of course worsened by the higher social security contributions, as one of the major challenges.
Mixed Sectoral Performance
While the construction sector grew by 0.7% in Q3, this was offset by a 0.4% contraction in production and stagnation in the services sector, with the worst performers of the lot being bars and restaurants, legal firms and advertising.
Household finance also remained stagnant as living standards were unchanged and many households used their savings to maintain their level of spending.
Government and Opposition React
Finance Minister Rachel Reeves said that the economy is in “serious state” and has blamed the problem on “15 years of neglect.” She said she had concentrated her budget on sustainable, long-term growth.
Critics, including the Conservative spokesman on economic affairs Mel Stride, asked the government to call off its planned tax rises, arguing that delay in policy changes further dented business confidence and damaged job prospects.
Current Account Deficit Improves
One bright spot in the ONS data was that the UK’s current account deficit narrowed to £18.1 billion in Q3, from £24 billion in Q2. That was better than economists had forecast, at £22.5 billion.
Both the policymakers and businesses may wish fortunes change in 2025 as the UK economy goes through these trying moments. However, uncertainty would remain on the road ahead with both the global economic pressure and the role of domestic fiscal policy assuming so crucial roles.
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