LONDON — The UK economy faced another hiccup during the third quarter of 2024, with growth tumbling to just 0.1%. This sluggish performance has raised alarms among officials, particularly Treasury chief Rachel Reeves, who expressed her dissatisfaction with the figures.
According to the Office for National Statistics (ONS), this latest growth figure is down from 0.5% seen previously, and it’s below the market expectations of 0.2%. The slowdown has been pinned on widespread stagnation across various sectors, triggering accusations against the new Labour government of undermining confidence.
On taking power in July for the first time after 14 years, Reeves had painted a dire picture of the economic situation, describing it as the worst it’s been for decades, necessitating urgent corrections. Critics, including Conservative Treasury spokesperson Mel Stride, argue the new government's rhetoric has directly contributed to deteriorated business and consumer confidence.
“Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” Reeves remarked, highlighting the government’s commitment to tackling the economic issues head-on. Prime Minister Keir Starmer echoed this sentiment, branding economic growth as the government’s number one priority for the next five years.
Adding to this narrative, the Resolution Foundation, a prominent think tank, pointed out the UK’s recent economic performance has been both unpredictable and stagnant. They noted, “This all serves to highlight the government's mission to renew strong economic growth is both extremely hard and absolutely necessary,” emphasized Simon Pittaway, the think tank’s senior economist.
One key issue many economists are citing for the slowdown is the aftershocks of Brexit, which continues to create barriers for UK businesses. The impact of leaving the EU back in 2020 has made international trade cumbersome, even though the post-Brexit trade agreement technically eliminated tariffs.
Bank of England Governor Andrew Bailey recently noted, “The changing trading relationship with the EU has weighed on the level of potential supply.” He highlighted the pressing need for the UK to rebuild relationships with European nations, particularly under the growing specter of global trade fragmentation.
While Starmer has voiced intentions to amend the UK’s relationship with the EU, he remains firm on not rejoining the single market or customs union. Instead, he’s proposing to reduce certain post-Brexit trade barriers, such as working out agreements to simplify checks on goods.
The grim figures from the third quarter follow broader trends of stagnation across various sectors. Notably, September data revealed the economy contracted by 0.1%, aligning with signals of waning economic momentum before the budget announcement. Although there were some signs of growth — apparent through household spending and government initiatives — they weren’t enough to counterbalance the general retreat of confidence.
Drilling down on sector performances, the services sector, which plays a pivotal role, recorded only 0.1% growth during this period. Meanwhile, production capacity contracted, driving home the message of economic fragility.
The construction sector, which typically acts as a bellwether for economic activity, performed relatively well, yet it couldn’t overshadow the poor performance of the broader economy. The ONS reported declines across multiple sectors, including telecommunications and wholesale, marking limited growth opportunities.
CBI Lead Economist Ben Jones characterized the economic outlook as tentative, attributing the stagnation to pre-budget anxieties among businesses. He underlined the need for the government to create conditions favoring investment and reassuring enterprises to engage more actively with the UK economy.
The Bank of England's apprehensions about potential future rate cuts also linger over market sentiment. With rising inflation still causing concern, investors are skeptical about how effective government measures will be.
All the same, the UK continues to navigate these waters, trying to align expansionary policies with the imperative of controlling inflation. The headwinds created by tax increases and other financial burdens might lead to increasing hesitancies among businesses around hiring and investment.
There are also worries about external pressures impacting the UK’s trade dealings. The prospect of facing steeper tariffs from the US under the current administration adds another layer of uncertainty to the UK’s economic environment.
Reeves is now at the forefront, proposing new policies to spur growth, including business tax reforms aimed at facilitating more investment. These strategies aim to weave together the fragmented economic potentials, particularly post-Brexit, to invigorate the economy and restore public services long affected by budget cuts.
Whether these economic revitalization proposals will spur significant change remains to be seen. Nevertheless, with the good and the bad stats coming from various sectors, the government faces mounting pressure to convert these challenges and uncertainties back to growth and stability.
Despite the hurdles presented, analysts remain cautiously optimistic about the potential for modest economic growth as the year wraps up, but they stress the urgency for comprehensive policies echoing confidence and resilience as key drivers for recovery.
