By William Schomberg and Andy Bruce
LONDON (Reuters) – Britain’s economy failed to grow in the third quarter, official figures showed on Monday, adding to signs of a slowdown that has cast a shadow over Prime Minister Keir Starmer’s new government.
The Office for National Statistics reduced its estimate of the change in gross domestic product output to 0.0% in the July to September period from a previous estimate of 0.1% growth.
The ONS also cut its second quarter growth estimate to 0.4% from 0.5% previously.
Starmer and his finance minister, Rachel Reeves, took power in early July, warning of the poor state of the economy before announcing tax rises for businesses in a budget on October 30 that has alarmed many business owners.
Analysts said the figures suggested the economy had stagnated throughout the second half of the year.
Last week, the Bank of England forecast that the economy will show zero growth in the fourth quarter. But it kept borrowing costs unchanged because of the risks still posed by inflation.
Paul Dales, chief UK economist at consultancy Capital Economics, said the decline in GDP was partly due to 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 suggests the economy doesn’t have much momentum as the year draws to a close.”
A separate survey from Lloyds (LON:) Bank showed confidence among businesses fell to its lowest level in 2024 in December.
Data from the Confederation of British Industry, based on previously published surveys, showed that businesses expected activity to fall in the first three months of 2025.
Alpesh Paleja, an economist at the CBI, said the figures “suggest the economy is heading for the worst of all worlds: companies expect to reduce both production and hiring, and expectations for price growth are becoming firmer.” .
The government’s increase in social security contributions for employers was exacerbating weak demand, Paleja said.
Reeves said Monday’s GDP data showed he faced a huge challenge “after 15 years of neglect” under previous Conservative-led governments, but that his budget would create long-term sustainable growth.
The ONS said there was no growth in the services sector in the third quarter. A 0.7% increase in construction was offset by a 0.4% drop in production.
Bars and restaurants, as well as law 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 narrowed to 18.1 billion pounds in the third quarter from 24 billion pounds in the April-June period.
The Reuters poll of economists had pointed to a deficit of 22.5 billion pounds.