UK economic output failed to grow in the third quarter

Britain’s economy failed to grow in the third quarter, official figures showed on Monday, adding to the signs of a slowdown that has cast a shadow over Prime Minister Keir Starmer’s new government.

The Office for National Statistics lowered its estimate for the change in gross domestic product output to 0.0 per cent in the July-to-September period from a previous estimate of 0.1 per cent growth.

The ONS also cut its estimate for growth in the second quarter to 0.4 per cent from a previous 0.5 per cent.

Starmer and his finance minister Rachel Reeves took power in early July, warning of the poor state of the economy before announcing tax increases for businesses in a budget on Oct. 30 that has alarmed many employers.

Analysts said the numbers suggested the economy had ground to a halt over the entire second half of the year.

The Bank of England last week forecast that the economy will show zero growth in the fourth quarter. But it kept borrowing costs on hold because of the risks still posed by inflation.

Paul Dales, chief UK economist at consultancy Capital Economics, said the GDP downgrade was caused in part by weaker demand for exports while consumer spending at home held up.

“Our hunch is that 2025 will be a better year for the economy than 2024,” Dales said. “But more recent data suggest the economy doesn’t have much momentum as the year comes to a close.”

A separate survey from Lloyds Bank showed confidence among businesses fell to its lowest level of 2024 in December.

Data from the Confederation of British Industry - based on previously released surveys - showed companies expected activity to fall in the first three months of 2025.

Alpesh Paleja, a CBI economist, said the figures “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.”

The government’s hike in social security contributions for employers was exacerbating weak demand, Paleja said.

Reeves said Monday’s GDP data showed she faced a huge challenge “after 15 years of neglect” under previous Conservative-led governments but that her budget would create sustainable long-term growth.

The ONS said there was no growth in the services sector in the third quarter. A 0.7 per cent increase in construction was offset by a 0.4 per cent fall in production.

Bars and restaurants as well as legal firms and advertising were among the weakest sectors in the three months to the end of September, it said.

The data also showed no growth in living standards and that households had dipped into their savings.

The ONS said Britain’s current account deficit shrank to 18.1 billion pounds in the third quarter from 24 billion pounds in the April-to-June period.

The Reuters poll of economists had pointed to a shortfall of 22.5 billion pounds.

Meanwhile British inflation hit an eight-month high in November, but the rise in services prices - watched closely by the Bank of England as an underlying measure of inflationary pressures - held steady, offering the central bank a little bit of relief.

Investors added slightly to their bets on interest rate cuts by the BoE next year - having slashed them on Tuesday after strong wage growth data - and sterling weakened as official data showed consumer prices rose by an annual 2.6 per cent in November.

That was the highest inflation rate since March, up from 2.3 per cent in October.

The rise meant inflation was moving further away from September’s 1.7 per cent - the first time that inflation had fallen below the BoE’s 2 per cent target in almost three-and-a-half years, during which time it topped 11 per cent at its peak.

“Another consecutive monthly rise in inflation, reaching its highest level since March, underscores the persistent price pressures within the UK economy,” Martin Sartorius, principal economist at the Confederation of British Industry, said.

The faster price growth was in line with economists’ expectations in a Reuters poll.

Services inflation - which the BoE views as a key measure of underlying price pressure - held at 5.0 per cent in November, unchanged from October, the Office for National Statistics said.

The economists polled by Reuters had mostly expected a slight increase in service price inflation to 5.1 per cent although the BoE had expected it to dip to 4.9 per cent.

Britain’s central bank is moving more slowly than others to lower borrowing costs and it is expected to keep interest rates on hold on Thursday after its December meeting.

Britain’s headline inflation rate in November was higher than in France, Germany or the United States.