(Commonwealth_Europe) The UK economy has flatlined in the first three months of the new Labour government, leaving the country on the brink of recession and forcing Chancellor Rachel Reeves to defend her first budget. The Office for National Statistics (ONS) had previously estimated a modest growth of 0.1 percent between July and September, but this has since been revised down to 0.0 percent, marking a weaker outcome than anticipated in the final quarter of the Conservative government’s tenure. This revision is expected to serve as a fresh blow to Sir Keir Starmer’s administration, which has placed economic growth at the core of its agenda.
Raising living standards has been a cornerstone of the party’s promises, with the Prime Minister earlier this month pledging that government spending plans would ensure working people have more money in their pockets and that progress must be felt by everyone everywhere. Nevertheless, data also available in the ONS’s latest GDP quarterly national accounts report illustrate no growth in disposable household income during Q3—the three months following Labour’s assumption of power—following a 1.4 percent growth in the preceding quarter. Real GDP per capita also fell by 0.2 percent in Q3, marking a 0.2 percent decrease compared to the same period last year.
The latest statistics come on the heels of a bleak prediction from the Confederation of British Industry (CBI), which cautioned that the private sector assumes a steep deterioration in activity into 2025. While the Chancellor has insisted that her first budget, unveiled in October, will deliver “sustainable long-term growth,” the most recent growth revisions have raised concerns about the economy’s outlook heading into 2025.
The Resolution Foundation pointed out that the economy appears to have returned to the “familiar post-2008 pattern of stagnating incomes and GDP.” Paul Dales, chief economist at Capital Economics, commented that the new figures leave “plenty of scope for a lively debate with the family over the festive period about whether or not the economy is heading for a recession.” Dales noted that the statistics propose that after a sturdy first half of the year, the economy ground to a pause in the second half due to a blend of influences, including the lingering effects of higher interest rates, weaker demand from abroad, and some uncertainties surrounding the budget’s policies. He predicted that while 2024 might be challenging, 2025 could prove a better year for the economy, though current data suggests there is little momentum as the year draws to a close.
A spokesperson for the Resolution Foundation noted that the downward revision in GDP growth—from 0.1 percent to 0.0 percent in Q3—was relatively minor in isolation but emphasized that it fits within the broader trend of stagnating incomes and GDP following a brief period of growth earlier in the year. The foundation underscored the challenge the government faces in reigniting robust economic growth.
Jonathan Portes, a professor of economics at King’s College London, argued that a recession in 2025 remains unlikely but warned that the election of Donald Trump in the US could increase risks, particularly with concerns over potential trade conflicts. Portes described the ONS revision as “tiny and irrelevant” but noted that it reinforces the notion that Labour inherited an economy struggling to achieve sufficient growth to sustain living standards. He called for a more comprehensive strategy to stimulate long-term economic growth.
Paul Johnson, Director of the Institute for Fiscal Studies (IFS), cautioned that the Chancellor may need to raise additional funds in the autumn, following the historic tax increases unveiled in the last budget. He warned that without a pickup in the economy, public services could face significant strain. Meanwhile, Russ Mould, investment director at AJ Bell, advocated for a period of stability in taxation and regulation to support growth, suggesting that fostering closer ties with the incoming Trump administration in the US could help stimulate trade.
In response to the latest data, Chancellor Reeves acknowledged the enormity of the challenge faced by the government after “15 years of neglect” but insisted that it only strengthened their resolve to deliver for working people. She reiterated that the budget and the government’s broader plans would deliver sustainable, long-term growth, driving increased investment and reform to put more money in people’s pockets.
However, Shadow Chancellor Mel Stride criticized the figures as evidence of failure under Labour’s leadership. He pointed to the “fastest growing economy in the G7” when Labour took office and claimed that under their stewardship, growth had stagnated, placing additional pressure on public finances and making the economy more vulnerable. A spokesperson for Reform UK also weighed in, accusing Starmer and Reeves of failing to fulfill their pre-election promises of the highest economic growth in the G7, claiming they were continuing the Conservative legacy of high taxes and a bloated state.
The CBI’s findings, released just a day before the GDP revision, warned that business leaders’ expectations were at a two-year low, with firms anticipating reduced output and hiring, alongside increasing price pressures. Alpesh Paleja, CBI Interim Deputy Chief Economist, noted that businesses continue to be impacted by measures announced in the budget, particularly the rise in employer National Insurance Contributions (NICs), compounding an already subdued demand environment.
While acknowledging that Labour had inherited a challenging economic situation, Russ Mould expressed doubts about whether their approach was the right one. He argued that while the government has been transparent about the need to raise funds, the impact of taxes often leads to unintended consequences and questioned whether the government’s strategy would effectively address the country’s economic challenges.
