The prospect of swift economic recovery remains elusive, Sir Keir Starmer warned on Monday, as official figures confirmed the UK economy stagnated in the third quarter.
Downing Street stopped short of denying the possibility of further tax rises, fuelling concerns among businesses that the government’s package of fiscal measures might not be enough to steady the ship.
Data from the Office for National Statistics (ONS) showed gross domestic product (GDP) flatlined at 0.0% between July and September, down from an initial estimate of 0.1% growth. The revision raises the spectre of recession, particularly after the ONS downgraded second-quarter growth to 0.4% from 0.5%. The legal and advertising sectors, along with pubs and restaurants, were cited as the main drags on output.
Paul Dales, chief UK economist at Capital Economics, noted that despite a strong first half of the year, momentum has dissipated. “The economy ground to a halt in the second half of the year due to lingering higher interest rates, weaker overseas demand and concerns over the budget,” he said. Dales expects 2025 to be “a better year” but warns that the economy is losing steam in the final months of 2024.
With Paul Johnson, director of the Institute for Fiscal Studies, cautioning that Labour’s Chancellor, Rachel Reeves, may have to “come back for more money” from the public, the government has been reluctant to rule out further tax hikes. When pressed, Starmer’s spokesman highlighted Reeves’s statement that her October budget was “once-in-a-parliament” and had “wiped the slate clean” by addressing a £22 billion fiscal shortfall. Yet he admitted the possibility remains that additional tax rises could be necessary.
Reeves’s inaugural budget introduced around £40 billion in tax increases, including a £25 billion rise in employers’ national insurance contributions. The measures have been linked to faltering business confidence, with the Confederation of British Industry reporting its weakest growth forecasts since November 2022. The Bank of England also revised its fourth-quarter outlook down to 0.0% from 0.3%, indicating a stalling economy in the latter part of 2024.
Starmer’s spokesman insisted the government is laser-focused on spurring economic growth that “delivers for working people,” but acknowledged that fixing the damage done over the past 15 years “won’t happen overnight.” Reeves echoed this sentiment, describing the scale of the task as “huge” but adding that it has only intensified Labour’s determination to “deliver for working people.”
Liz McKeown, the ONS’s director of economic statistics, explained that the ongoing weakness across key service sectors is compounding the slowdown. Meanwhile, although household disposable income rose annually by 4.5% in the third quarter, the savings ratio remains well above its pre-pandemic average, hinting that many households are bracing for further financial turbulence.