UK Growth Slows Unexpectedly in Third Quarter
The UK economy unexpectedly slowed to 0.1% growth in the July-to-September period, according to official figures, primarily due to a slump in car production following the cyber-attack on Jaguar Land Rover (JLR). This figure falls short of analysts' predictions of 0.2%, posing a challenge for Chancellor Rachel Reeves just weeks before the upcoming budget.
The Office for National Statistics (ONS) data reveals that the decline in car production was the most significant factor impacting growth during the quarter. Even when this impact is removed, other sectors of the economy showed weak growth.
Services, which encompass shops, restaurants, arts and entertainment, and real estate, along with construction, experienced growth but at a slower pace compared to the previous quarter. The latest GDP figure indicates a slowdown from the 0.3% growth in the previous quarter and the 0.7% expansion in the first quarter of the year.
The JLR cyber-attack, which began on August 31, led to a five-week halt in production for one of the UK's largest car manufacturers. As a result, overall production output fell by 2% in September, with a 28.6% drop in car output being the primary cause.
Despite the UK's position as the fastest-growing economy in the G7 during the first half of the year, Chancellor Reeves acknowledges the need for further efforts to build an economy that benefits working people. She plans to make fair decisions at her budget later this month to strengthen the economy and address issues like waiting lists, national debt, and the cost of living.
Shadow Chancellor Mel Stride criticized the government's performance, suggesting that the Prime Minister and Chancellor are 'in office but not in power'. He also implied that Sir Keir Starmer has reduced the Chancellor's responsibility for the budget.
ONS Director of Economic Statistics Liz McKeown highlighted that services were the main contributor to growth in the latest quarter, with business rental and leasing, live events, and retail performing well. However, this was partially offset by declines in R&D and hair and beauty salons.
Ruth Gregory, deputy chief UK economist at Capital Economics, noted that even without the JLR cyber-attack's impact on GDP growth, the economy is struggling to gain momentum. She predicts that tax rises in the upcoming budget will further reduce GDP by around 0.2% in 2026, making it unlikely for GDP growth to accelerate significantly from this point.
The weak figures have led some analysts to speculate that the Bank of England may cut interest rates when it meets next month, as the data may prompt a majority of rate-setters to authorize another policy loosening.
