Latest Office for National Statistics (ONS) data has shown that the economy failed to grow in Quarter 3 (Q2).
While GDP was up 0.2% in September, growth for August was revised down to 0.1% from 0.2%. With GDP flatlining in Q3, it means the UK has avoided a recession in 2023, with this defined as two consecutive quarters of negative GDP.
The economic growth was driven by 0.2% growth in the services sector, with particular strength in professional, scientific and technical activities and in healthcare. Consumer Services fell 0.2% month-on-month. Construction output rose 0.4% month-on-month. Production was flat month-on-month.
James Smith, Research Director at the Resolution Foundation, said “The UK economy has stagnated again in recent months, driven in part by the rapid rise in interest rates since late 2021. There is a real risk that the UK could fall into recession for the fourth time in 15 years.”
“Britain is a stagnation nation that has struggled to secure sustained economic growth since the financial crisis. Addressing this is the central task we face as a country, and must be at the heart of the Chancellor’s Autumn Statement in 10 days’ time.”
Suren Thiru, Economics Director at ICAEW said “Flatlining quarterly UK GDP suggests that our economy lost momentum as the squeeze from inflation and higher borrowing costs suffocated output. The UK economy is in a tough period, with the lagged impact of previous interest rate rises, an onerous tax burden and a weakening jobs market likely to weigh heavily on GDP in the fourth quarter.”
“A stuttering economy makes the Autumn Statement more difficult because it means weak tax receipts for the government, while any notable fiscal loosening risks refuelling inflation pressures. These downbeat GDP figures suggests the Bank of England may have overdone the interest rate rises, and with that, the case for rate setters to pivot towards loosening policy is likely to strengthen.”
Ben Jones, Lead Economist at Confederation of British Industry (CBI) said “Forecasts for the UK economy have generally been edging down recently and the latest growth figures lived up to this gloomier view of near-term prospects.”
“It’s clear that higher interest rates are starting to bite, and demand has become less resilient. CBI surveys agree with that overall picture and suggest that private sector activity is likely to stagnate in the coming months.”
“The Bank of England’s latest forecasts make for particularly grim reading, with the economy expected to be flat next year and before growing at feeble rates in both 2025 and 2026. But action from the Chancellor in the Autumn Statement in a couple of weeks’ time could change that outlook.”
“Unlocking business investment across the economy by making full expensing permanent could – according to CBI analysis – lead to a 2% increase to GDP by the end of the decade.”
Alex Veitch Director of Policy and Insights at the British Chambers of Commerce, said “Today’s preliminary estimate, showing GDP failed to grow in Q3, provides further evidence of the difficulties the UK economy faces. Weak growth in construction offset a fall in services output, while production remained flat. However, the outlook across all sectors remains uncertain.”
“Our research is clear about the issues businesses are up against. After three years of economic shocks, firms are now having to deal with high inflation and interest rates. They also face persistent skills shortages and trade barriers with the European Union. Consequently, most SMEs report no increase in their investment plans.”
“Businesses need to see a clear path ahead for growth from Government. The Autumn Statement must set out a strategic vision and framework to boost investment. We are calling on the Chancellor to be bold and focus on key issues that impact business, including planning, full expensing, the energy grid, business rates and occupational health.”
Yael Selfin, Chief Economist at KPMG said “Economic activity is continuing to slow as high interest rates are weighing on consumer sentiment and disposable incomes.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economy narrowly avoided contracting in Q3, and we continue to think that it can maintain this resilient performance in Q4”
“We continue to think that the chances of a recession look low,”