Harsh economic data gives Reeves a New Year hangover already

Chancellor Rachel Reeves working on the 2024 Budget (Credit: Kirsty O'Connor / Treasury)

The UK economy didn’t grow at all in the three months to September according to the second estimate of GDP growth released by the Office for National Statistics today. 

The reduction from 0.1% registered in the first estimate suggests that GDP per capita actually shrank in Q3, to the tune of 0.2%.

The bleak economic data comes as a survey of CBI members showed a drop in confidence.

Nationally, business expects activity to fall in the three months to March (weighted balance of -24%), according to the CBI’s latest Growth Indicator. Expectations are now at their weakest in over two years.

This pessimism was shared across all sub-sectors. Business volumes in the services sector are anticipated to decline (-18%), driven by predicted falls in both business and professional services (-13%) and consumer services (-37%). Distribution sales are expected to fall steeply (-35%), and manufacturers also anticipate output to fall (-31%), with expectations at their weakest since May 2020.

The disappointing outlook comes as private sector activity fell again in the three months to December, at a faster pace than in the three months to November (-21% from -13% in November). Activity has been flat or falling since August 2022.

Alpesh Paleja, CBI Interim Deputy Chief Economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer. Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.

“As we head into 2025, firms are looking to the government to boost confidence and to give them a reason to invest, whether that’s long overdue moves to reform the apprenticeship levy, supporting the health of the workforce through increased occupational health incentives or a reform of business rates.”

Laith Khalaf, head of investment analysis at AJ Bell, said: “This is unfestive news for the chancellor and the prime minister, who have promised to get the UK growing again. Clearly the government can’t be expected to turn on the taps of the whole economy in its first three months, but the fact GDP has flatlined does outline the scale of the problem.

“It also comes as business groups have criticised Labour’s first Budget in which Rachel Reeves chose to increase National Insurance for employers, which businesses are understandably warning will cost jobs and put upward pressure on inflation.

“Last week the Bank of England said it expected zero growth in the fourth quarter of 2024, again a downgrade from their previous forecast of 0.3%. If that proves to be correct, it could mean no growth in the whole second half of this year. That would pretty be close to a technical recession, defined as two quarters of negative economic growth.

“All in all it’s a pretty dreary economic picture as we enter the new year. The latest readings and forecasts also somewhat put the kibosh on the idea that the UK might reap an economic dividend from the political stability provided by a new government with a strong majority. Then again, we don’t know whether the alternatives might have been worse for the economy.”

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