The UK economy experienced minimal growth from July to September, primarily due to uncertainties surrounding the recent Budget. During this period, growth was recorded at a mere 0.1%, with a contraction noted specifically in September. As the new government led by Labour prioritizes economic recovery, Chancellor Rachel Reeves expressed disappointment with these figures, which reflect the early months of her administration.
The recent Budget has sparked criticism from numerous businesses regarding proposed tax increases, which they fear will adversely affect employment and exacerbate inflation. Notable retailers such as Marks & Spencer and Sainsbury’s have suggested that they may need to raise prices in response to these changes.
Economists noted that the latest growth figures were below expectations, marking a significant decline from the 0.5% growth observed in the preceding quarter. Many experts argue that apprehension about potential fiscal measures outlined in October’s Budget has led to hesitancy among both businesses and consumers.
Ben Jones, lead economist at the CBI business group, highlighted that many firms reported a noticeable slowdown in decision-making prior to the Budget announcement. He remarked that the measures introduced have raised “warning lights for business,” anticipating a shift towards more cautious approaches concerning pay, hiring, and investment.
The increase in National Insurance Contributions is particularly concerning for companies as it may lead them to reconsider their growth strategies.
Experts acknowledge that while a slowdown was anticipated following an extraordinary first half of the year, the severity of this decline has exceeded expectations. Luke Bartholomew, deputy chief economist at Abrdn, pointed out that September’s performance was especially weak, potentially reflecting heightened uncertainty regarding forthcoming tax changes.
Andy Crisp, who manages a restaurant chain in Manchester, observed a decline in customer traffic leading up to Reeves' Budget. Although summer sales showed modest growth of 2-3%, he sensed a downturn just prior to the Budget’s reveal due to public anxiety about its implications.
The services sector, which constitutes over three-quarters of the UK economy, has played a significant role in this slowdown. Economists predict that the economic outlook will remain inconsistent moving forward. Following Reeves' presentation of what she termed a “Budget for growth,” independent forecasts from the Office for Budget Responsibility indicated that any boost from these measures would likely be temporary and suggested a stagnant economic size over the next five years compared to earlier projections.
As the government grapples with post-Brexit challenges and evolving fiscal policies, stakeholders are keenly observing how these factors will impact long-term economic stability and growth prospects.
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