The Bank of England in the City of London on November 6, 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government area containing the main central business district of London. The City of London is widely referred to as 'The City' and also known colloquially as 'The Square Mile'. (Photo by Mike Kemp/Photo via Getty Images)
Mike Kemp | In pictures | Getty Images
The UK economy showed a surprise contraction in September and only marginal growth in the third quarter after a strong rebound at the start of the year, preliminary figures showed on Friday.
GDP fell by 0.1% in September, after growth of just 0.2% in the previous month, according to the Office for National Statistics. Economists polled by Reuters had expected growth of 0.2% for September.
For the third quarter as a whole, the British economy grew by just 0.1% compared to the previous quarter. This is lower than the 0.2% growth that economists had expected and comes after a 0.5% expansion in the second quarter of the year.
The UK's dominant services sector also grew by just 0.1% during the quarter, the ONS said. The construction sector rose by 0.8%, while production fell by 0.2% in the month.
It comes after UK inflation fell sharply to 1.7% in September, falling below the Bank of England's 2% target for the first time since April 2021. Lower inflation helped pave the way for the central bank to cut interest rates by 25 basis. point on November 7, bringing the key interest rate to 4.75%.
The Bank of England said last week that it expects the Labor government's tax hike budget to boost GDP by 0.75 percentage points within one year. Policymakers also noted that the government's fiscal plan led to an increase in their inflation expectations.
British Finance Minister Rachel Reeves said on Friday that she was “not satisfied” with the numbers.
“In my Budget, I made the tough choices to repair the foundations and stabilize our public finances. Now we will deliver growth through investment and reform to create more jobs and more money in people’s pockets, and get the NHS back on its feet again,” she said in a statement. Hers: “Rebuild Britain and secure our borders in a decade of national renewal.”
Analysts pointed to underlying weakness in the economy and rising risks from geopolitical tensions as potential barriers to further growth.
“It is clear that the economy has a little less momentum than we had previously thought,” said Ruth Gregory, deputy chief UK economist at Capital Economics. “It is striking that the economy has only grown in two of the past six months.”
“Overall, despite the contraction in September, we still expect GDP growth to rebound in the coming quarters as debt-financed government spending boosts activity and as the effects of higher inflation and higher interest rates continue to fade,” Gregory added.
A rate cut at the Bank of England's next meeting in December now looks “unlikely”, according to Suren Thero, director of economics at the Institute of Chartered Accountants in England and Wales. He said inflation risks and rising global headwinds would likely prevent policymakers from pursuing successive interest rate cuts.
“These numbers suggest the economy is off the boil even before the budget, as weak business and consumer confidence helped dampen production during the third quarter, especially in September,” Theroux said in email comments.
The results of the recent US elections have heightened great uncertainty about the global economic impact of another term for President-elect Donald Trump. While Trump's proposed tariffs are expected to be massively inflationary and hit the European economy hard, some analysts have said such measures could provide opportunities for the British economy.
Bank of England Governor Andrew Bailey offered little last week about the bank's views on Trump's tariff agenda, but noted the risks of global fragmentation.
He told reporters during a press conference, “Let's wait and see where things go. I will not prejudge what may happen or what may not happen.”
the British pound It was broadly flat against the US dollar by mid-morning in London. The euro rose 0.4% against the pound after the GDP release on Friday.
