UK growth slows in third quarter, dealing blow to Labour government

LONDON — Britain's economy grew less than expected in the third quarter, official data showed on Friday, dealing a blow to the Labour government that has set its sights on growth expansion.

Gross domestic product (GDP) grew by 0.1 per cent in the July-September period, a slowdown compared to 0.5-per cent growth in the second quarter, the Office for National Statistics said.

The data covers the period of the Labour government's first few months in office in the lead up to its highly anticipated maiden budget at the end of October.

The figure lagged behind economist forecasts of 0.2-per cent growth, with analysts partly attributing the slowdown to uncertainty ahead of the budget.

"Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers," finance minister Rachel Reeves said on Friday in reaction to the latest GDP figures.

"At my budget, I took the difficult choices to fix the foundations and stabilise our public finances", she added.

The Labour government's first budget included major tax hikes and increased borrowing to meet Prime Minister Keir Starmer's mission of firing up the economy, focusing on long-term growth over short-term wins.

It was the first Labour budget in nearly 15 years, after the party won a landslide election in July that ended years of Conservative rule.

In a further attempt to boost growth, Reeves announced reforms to Britain's financial sector on Thursday, including a plan to create mega pension funds to unlock vast sums for investment.

'Less momentum'

"The economy grew a little in the latest quarter overall as the recent slowdown in growth continued," noted Liz McKeown at the statistics office.

UK growth pushed on with its downward trajectory after previous data showed the economy slowed in the second quarter compared to the first.

Friday's data also showed that the economy shrank slightly in September.

"Services showed no growth, with a notable increase in car sales offset by a slow month for IT companies," McKeown added.

Analysts have attributed part of the third-quarter slowdown to worries about the impacts of the budget.

Lindsay James, investment strategist at Quilter Investors said the persistent "gloomy messaging" in the run up to the budget caused "consumers and businesses to pause spending and await what pain was to come".

Analysts will be closely eyeing next quarter's figures for the first signs of the impact of measures announced in the budget.

"It's clear that the economy has a bit less momentum than we previously thought," said Ruth Gregory, deputy chief UK economist at Capital Economics.

She added that she expected economic growth to pick up in the coming quarters when measures announced in the budget begin to kick in, inflation eases and interest rates cool.

In November, the Bank of England trimmed borrowing costs by 25 basis points to 4.75 per cent after UK inflation hit a three-year low.

Separate data this week showed Britain's unemployment rate jumping more than expected, climbing 4.3 per cent in the third quarter from 4.0 per cent in the three months to the end of August.