Bank of England in the City of London on 6th November 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government district that contains the primary central business district CBD of London. The City of London is widely referred to simply as the City is also colloquially known as the Square Mile. (photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Pictures | Getty Images
Britain’s economy failed to achieve any growth in the three months to September, revised figures from the U.K.’s Office for National Statistics showed on Monday.
A preliminary estimate for the third quarter, published by the ONS last month, said U.K. GDP grew at 0.1% during that period. However, the final data released on Monday showed 0% GDP growth from the previous quarter.
The British pound was slightly lower against the U.S. dollar on Monday, trading around $1.2566 by 8:37 a.m. London time.
Monday’s figures deal another economic blow to Britain, after a series of weak data prints have dampened sentiment and raised questions about the newly elected Labour government’s fiscal strategy.
Earlier this month, data from the ONS showed the U.K. economy had unexpectedly contracted by 0.1% in October. It was the second consecutive monthly GDP decline for the country, following a fall of 0.1% in September.
Looking ahead, Paul Dales, chief U.K. economist at Capital Economics, said he expects the British economy to have also stagnated in the final quarter of 2024 — but his view was not entirely pessimistic.
“Overall, these data suggest that after a bumper first half of the year, the economy ground to a halt in the second half of the year due to a combination of the lingering drag from higher interest rates, weaker overseas demand and some concerns over the policies in the budget,” he said in a note Monday.
“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.”
Inflation, meanwhile, looks to be moving higher once again. The ONS said last week that U.K. inflation had risen to 2.6% in November, marking the second back-to-back month of an upward tick in prices.
The Bank of England subsequently held its core interest rate steady at 4.75%. While markets had been expecting no rate change at Thursday’s Monetary Policy Committee (MPC) meeting — there was surprise that three MPC members voted to reduce rates (a Reuters poll had forecast only one member would vote to cut).
While Governor Andrew Bailey has previously signaled four rate cuts could be possible next year, traders are divided over when the Bank of England will resume lowering interest rates. LSEG data shows that markets are expecting another hold at February’s MPC meeting, with a small majority of traders expecting rates to be cut by 25 basis points in March.
It comes after U.K. Finance Minister Rachel Reeves in late October unveiled the Labour government’s first budget since replacing the longstanding Conservative government in July.
The budget included plans from Prime Minister Keir Starmer’s government to raise taxes by £40 billion ($50.5 billion). Reeves said at the time that this would be achieved through a raft of new policies, including a hike in employer National Insurance payments — a tax on earnings — as well as a rise in capital gains tax and the scrapping of winter fuel payments to pensioners.
Some of the policies have been met with widespread criticism. The national insurance payroll tax hike, for example, has prompted warnings from businesses that they will be less likely to take on new workers, with a report from recruitment site Indeed earlier this month suggesting the policy had already hit British job openings.