The UK economy has shown zero growth for the third quarter of 2024, according to revised figures released by the Office for National Statistics (ONS), marking a significant downturn for the nation. This downward revision rescinded the previous estimate of 0.1% growth, leading to fresh concerns over the economic management by Prime Minister Keir Starmer's administration, which has been striving to stimulate growth since taking office.
Data indicates the economy flatlined between July and September, with the stagnation reflecting weaker performance across key industries such as legal services and hospitality. Liz McKeown, the director of economic statistics at ONS, highlighted the disappointing results, stating, "The economy was weaker in the second and third quarters of this year than our initial estimates suggested with bars and restaurants, legal firms, and advertising, in particularly performing less well."
Notably, household disposable income showed no real growth during this period, and early estimates suggest real GDP per head fell by 0.2%, underlining the pressures faced by everyday consumers.
Further data from the ONS revealed the UK experienced its poorest performance alongside Italy within the G7 nations, both countries reportedly treading water with no growth. This is particularly concerning as it signals economic stagnation following earlier positive growth patterns earlier this year, which saw the UK economy grow by 0.7% in the first quarter and 0.4% in the second quarter.
According to Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry (CBI), the overall sentiment remains grim as many firms are now considering reducing both output and workforce. He pointed out, "There is little festive cheer in our latest surveys, which suggest the economy is headed for the worst of all worlds - firms expect to reduce both output and hiring, and price growth expectations are getting firmer."
Indeed, the number of employers who have expressed intentions to cut staff—48% as recorded—echoes the growing apprehensions surrounding the government's tax policies, particularly the increase in National Insurance contributions which have raised fears among business leaders. Alex Perkins, who runs a Weybridge business, remarked, "We cut seven people. It could have been fewer thanthat, but the reason we took a bit more drastic action was based on the National Insurance rise, which will cost around £50,000 to £55,000 a year."
This stagnation has prompted sharp criticism of the current government’s economic strategy. Shadow Culture Secretary Stuart Andrew characterized the situation as "really disappointing," noting on Sky News, "We're seeing these really worrying signs... clearly people's confidence in the growth of the economy has gone, and so they really need to think about the disastrous decisions they made in the budget."
The chancellor Rachel Reeves acknowledged the uphill battle faced by the government after "15 years of neglect" from the past administration. She reiterated her commitment to delivering sustainable long-term growth, aiming to put additional money back to households through increased investment and reforms. She stated, "The challenge we face to fix our economy is massive, but this is only fuelling our fire to deliver for working people."
The concerning economic readings will impede the government’s ambitions to fast-track economic growth, especially after pledges made following Labour's July election victory. Recent forecasts from the Bank of England coincide with the downward revisions, predicting stagnant growth at least through to the year-end, adding to the growing anxiety among economists.
Many economic experts have warned of possible recession signals, reflecting on the worsening business sentiment as economic confidence falters. Helen Dickinson, chief executive of the British Retail Consortium, noted the difficult choices facing retailers, stating, "They will have no choice but to raise prices or cut costs – closing stores and freezing recruitment."
Despite the downturn, the UK government has attempted to instill confidence through support measures aimed at businesses, including the creation of the National Wealth Fund intended to catalyze over £70 billion of investment. Yet, these efforts are tempered by clearer indications of economic malaise—businesses are reconsidering hiring strategies as they brace for higher costs and shifting consumer demands. Liz McKeown cautioned, "Meanwhile, real household disposable income per head showed no growth, presenting challenges for consumer behavior moving forward."
The ONS data also exposed performance slumps within the services sector, with no growth recorded during the third quarter as construction marginally offset losses from production. This shows just how multifaceted the economic challenges have become, affecting various sectors simultaneously.
With these adverse signals on the horizon, many economists are left pondering whether the end of the year will bring with it the resurgence of positive growth or if the UK will take substantial steps back, laying the groundwork for even tougher conversations on economic strategies as 2025 approaches.
