UK economy slumps as GDP figures are revised downward | Economic growth (GDP)

The UK economy showed no growth at all between July and September and is expected to slump throughout the second half of 2024, undermining Keir Starmers' promise to restart growth.

In an unexpected downward revision, the Office for National Statistics' third-quarter growth rate was revised to zero, lower than the original estimate of 0.1% announced last month, as the Labor Party, which took power in July, faces pressure over its economic management.

The second quarter growth rate was also adjusted downward from 0.5% to 0.4%.

The ONS said the downgrade was driven by pubs, restaurants, law firms and advertising, which had performed worse than initially expected.

UK GDP Chart

The latest snapshot shows the UK has seen stagnant activity for two consecutive quarters. It follows a decline in business and consumer confidence due to the new government's gloomy rhetoric, along with $40 billion in tax increases in the autumn budget.

Last week the Bank of England warned that UK growth would stall in the final three months of the year. Although it falls short of the technical definition of a recession, which is considered negative growth in the second quarter, the downgrade would be a major blow to the government, which has made restoring growth its top priority.

Labor is facing a difficult start in government, coming under scrutiny for its pessimistic assessment of the economy after blaming the Conservatives for a dire legacy that left them with no choice but to raise taxes.

Following the growth revisions, Prime Minister Rachel Reeves defended her budget measures, saying the government was focused on promoting sustainable long-term growth through economic reforms.

She said the challenge we face to fix the economy and adequately fund public finances after 15 years of neglect is enormous.

Business leaders have warned that growth and jobs will be put at risk by the $40 billion tax rises Reeves announced in his autumn budget, much of which will come from raising employer national insurance premiums by $25 billion from April.

The CBI lobby group warned on Monday that the UK economy was headed for the worst, with activity expected to fall sharply in the first three months of 2025 as businesses come under pressure.

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A recent Growth Indicators survey found that private sector companies expect to cut hiring, reduce production and raise prices in the first quarter. Shadow business secretary Andrew Griffith said this was a sign that a recession was increasingly likely.

He said Labor was literally killing businesses and jobs through its policies and rhetoric, adding: Since taking office, the Prime Minister has made this country a hostile environment for aspirations, investment and growth.

The latest figures from the ONS show that living standards have not improved and households' savings have fallen. Initial estimates show that real gross domestic product (GDP) per capita decreased 0.2% in the third quarter, compared to the same period last year.

Paul Dales, chief UK economist at consultancy Capital Economics, said the headline downgrade appeared to be mainly due to external influences rather than the domestic economy. This is partly due to larger-than-expected declines in exports and housing investment. Consumer spending and business investment were revised upward.

This leaves plenty of room for lively discussions with families over the festive period about whether the economy is heading for a recession, he said.

Our gut feeling is that 2025 will be a better year for the economy than 2024. But recent data shows the economy is not gaining much momentum as the year comes to a close.

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