The UK economy flatlined between July and September and is on track to have stagnated over the entire second half of 2024, adding to pressure on Keir Starmer over his promise to reboot growth.
In an unexpected downgrade, figures from the Office for National Statistics (ONS) showed growth in the third quarter was revised down to zero, below an initial estimate of 0.1% made last month.
The figures underline Labour’s challenging start in power. Rachel Reeves has come under intense scrutiny over her downbeat assessment of the economy, arguing the Conservatives’ dire inheritance left no choice but to impose £40bn of tax rises in her autumn budget.
After the growth revision, the chancellor defended her approach, arguing the government was focused on driving up “sustainable long-term growth” by reforming the economy. “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge,” she said.
Speaking to the Guardian, Reeves said she would not “gaslight” the public about how long the turnaround would take. “Has it been difficult? Yes. Is there more to do? Absolutely. Next year is really going to be about delivering for working people. This year a lot of it has been about fixing the foundations, bringing the stability back.”
Growth in the April to June quarter was also adjusted down, from 0.5% to 0.4%. The ONS said the downgrades were driven by bars and restaurants, legal firms and advertising performing less well than it first expected.
The latest snapshot suggests the UK is on course for two consecutive quarters of flatlining activity, after the Bank of England predicted last week that UK growth would stagnate in the final three months of the year. Although falling short of the technical definition of a recession – two quarters of contraction – the downgrade will come as a blow to the government after it made reviving growth its number one priority.
A recent run of negative data and headlines has forced ministers on to the back foot. Business leaders have accused Reeves of putting growth and jobs at risk through her budget tax rises, with the bulk of the £40bn raised through a £25bn increase in employer national insurance contributions from April.
The CBI lobby group said on Monday that the UK economy was “headed for the worst of all worlds” as firms came under pressure, with a “steep” decline in activity forecast for the first three months of 2025.
In its latest growth indicator survey, private sector firms said they expected to cut down on hiring, reduce output and raise prices in the first quarter. Andrew Griffith, the shadow business secretary, said this signalled a recession “seems increasingly likely”.
He accused Labour of “literally killing businesses and jobs” through its policies and rhetoric, adding: “Since taking office, the chancellor has made this country a hostile climate for aspiration, for investment and for growth.”
A Labour source said: “We’ve been under no illusion about the scale of the challenge facing the economy, or the fact that tough decisions have had to be taken to bring stability back, to unlock investment and put more money in people’s pockets.
“For all the noise in response to the budget, there have been no alternatives put forward, just sniping from the sidelines, including from the Conservatives, who did so much damage over 14 years.”
The Treasury hopes to reset the narrative in January when Reeves gives a speech setting out the government’s plans for the economy next year, arguing that, having restored stability, she can now turn to delivering manifesto pledges.
The latest figures from the ONS showed no growth in living standards and that households had dipped into their savings. Early estimates also show that real GDP per head fell by 0.2% in the third quarter, and was 0.2% lower compared with the same period a year earlier.
Paul Dales, the chief UK economist at the consultancy Capital Economics, said the downward headline revision appeared to be mainly due to external influences rather than the domestic economy. This was partly due to a bigger fall in exports and investment in dwellings than originally estimated. Consumer spending and business investment was revised up.
“This leaves 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,” he said.
“Our hunch is that 2025 will be a better year for the economy than 2024. But more recent data suggest the economy doesn’t have much momentum as the year comes to a close.”
