Why did the UK financial system sluggish throughout the third quarter, and what does it indicate?

Economic progress slowed all through the UK between July and September, consistent with the newest official figures.

Chancellor Rachel Reeves has talked about she is “not satisfied” with the numbers, which confirmed the financial system rising by merely 0.1% throughout the quarter following Labour’s election win.

But what does this actually inform us, and what affect will it have? The PA data firm explains.

– What is gross dwelling product?

Gross dwelling product, or GDP, is the time interval normally used to clarify the size of a nation’s financial system.

It is the measure of what’s occurring financially all through all corporations, governments and households.

Economic progress happens when households and firms are spending extra cash and creating additional jobs, whereas a contraction is when people and firms are pulling once more spending.

– What occurred?

On Friday, the Office for National Statistics (ONS) talked about GDP grew 0.1% for the three months to September.

That is only a small improve, and it comes after the financial system grew 0.5% throughout the earlier quarter, from April to June.

Things nonetheless look comparatively weak compared with the first half of 2024, when the financial system was bouncing once more fast from a recession in late 2023.

Liz McKeown, ONS director of monetary statistics, talked about some sectors like retail and growth carried out properly, nonetheless added: “Generally, growth was subdued across most industries in the latest quarter.”

– Why did it decelerate?

Several specialists talked about the slowdown could have been all the way in which right down to corporations holding once more on spending alternatives until after the Budget.

Ben Jones, lead economist on the Confederation of British Industry, talked about uncertainty throughout the run-up to the autumn Budget “probably played a big part”, after firms reported a slowdown in making spending alternatives.

The firms sector, which contains points like retailers, leisure actions, finance firms and loads of additional, was flat in September, and grew by merely 0.1% by means of the three-month interval.

Because it’s such a large part of the financial system, about 80%, that was a key driver of complete GDP.

The growth sector observed 0.8% progress, whereas the smaller manufacturing sector contracted by 0.2%.

– What does this indicate for the Government?

Economic progress slowing is often seen as a nasty issue, and Chancellor Rachel Reeves talked about she was “not satisfied with these numbers”.

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Plenty of surveys confirmed corporations held once more on spending throughout the months sooner than the October Budget, which Ms Reeves repeatedly warned would include “tough decisions”.

Shadow chancellor Mel Stride talked about it had been Labour’s “mission to talk down the UK economy”.

But it’s not sure how plenty of the slowdown could also be put all the way in which down to the current Government, which solely acquired right here into office a few week into July.

Luke Bartholomew, deputy chief economist on the funding huge Abrdn, talked about it’s “also possible that this just represents normal monthly volatility rather than anything more fundamental”.

– Will it affect Labour’s spending plans?

Probably not. Ms Reeves talked about on Friday morning that she wished progress to “be stronger, to come sooner, and also to be felt by families right across the country”.

And the Budget, by means of which Labour moreover launched a £70 billion improve in public spending, acquired right here after the interval lined by these figures.

Sanjay Raja, chief UK economist at Deutsche Bank, talked about “The road ahead remains bumpy.”

He warned that the tax rises could hit enterprise spending further sooner than Labour’s spending plans start having a optimistic affect early subsequent yr.

“We see growth picking up a touch towards year-end. And we still see positive momentum into 2025,” he talked about.

– What regarding the Bank of England?

The Bank of England’s policymakers could be sustaining an in depth eye on GDP figures to guage as soon as they will subsequent decrease the underside fee of curiosity.

This impacts how pricey it’s to borrow money, and dictates points like mortgage costs from extreme street banks.

The Bank’s Monetary Policy Committee decrease charges of curiosity by 1 / 4 degree to 4.75% in early November, with one different costs decision coming in December.

But Suren Thiru, economics director on the Institute of Chartered Accountants in England and Wales talked about that whatever the “downbeat” figures, one different value decrease subsequent month seems “improbable”.

He talked about value 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.”