The UK economy is heading “for the worst of all worlds” as gross domestic product (GDP) showed no growth in the third quarter of 2023, according to official figures.
The stagnation comes as business groups warn that activity is set to fall at the start of the new year.
The Office for National Statistics said that UK GDP showed no growth between July and September, in the run up to the Autumn Budget. Statisticians had previously estimated 0.1 per cent growth for the quarter.
Alpesh Paleja, the Confederation of British Industry (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.”
The impact on employment is particularly severe, with the CBI survey of 899 firms showing that private sector employment “will be cut sharply” in the first quarter of 2025..
Many employers are weighing up whether to cut their workforce to response to the rise in National Insurance at a time when the economy is grinding to a halt.
Alex Perkins, who has run the Weybridge business for the past 16 years, said it was the first time since the recession in 2009 that he had been forced to let staff go.
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Hiring intentions have fallen to their lowest level since October 2020, during the Covid pandemic
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He said: “We cut seven people. It could have been fewer than that, but the reason we took a bit more drastic action was based on the National Insurance rise, which will cost around £50,000 to £55,000 a year.”
Andrew Griffith, conservative business spokesman accused Reeves of creating “a hostile climate for aspiration, for investment, and for growth”.
He said: “The Chancellor’s tax-raising spree and trash-talking her economic inheritance is literally killing businesses and jobs.
“If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street. Labour need to urgently change course before the damage they are doing becomes even greater.”
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Hiring intentions have fallen to their lowest level since October 2020, during the Covid pandemic.
Nearly half of firms (48 per cent) are planning to reduce staff numbers, whilst 62 per cent have scaled back their pre-Budget hiring plans.
The British Retail Consortium has reported that consumer confidence about the economy has “nosedived” since the Budget.
Helen Dickinson, the consortium’s chief executive, warned that retailers face difficult choices as sales struggle to keep pace with rising costs.
She said retailers “will have no choice but to raise prices or cut costs – closing stores and freezing recruitment.”
The employers’ organisation said the outlook for the start of 2025 was “firmly negative” across all main sectors, including manufacturing, services and retail.
The Treasury has defended October’s budget, stating that “more than half of employers will either see a cut or no change in their National Insurance bills.” A Treasury spokesperson emphasised the government’s business support measures, including corporation tax being capped at the lowest rate in the G7.
They also highlighted plans for pension mega funds to boost investment in British businesses and infrastructure. The Government pointed to its creation of a National Wealth Fund, intended to “catalyse over £70bn in investment to drive growth.”
The ONS also revised down its growth reading for the second quarter of 2024, to 0.4 per cent. In September, it said it thought GDP had increased by 0.5 per cent, which was itself a reduction on previous estimates.
The downbeat economic readings provide a blow to Reeves and the Government’s hopes to grow the economy rapidly.
Retailers “will have no choice but to raise prices or cut costs, hiring boss warns
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Reeves promised to turbocharge economic growth after Labour won the July election but has now seen the economy stall over the three months to September, while official figures earlier this month also pointed towards a 0.1 per cent decline in October. Today’s downward revision was partly linked to a weaker performance across the important services industry.
Liz McKeown, ONS director of economic statistics said: “The economy was weaker in the second and third quarters of this year than our initial estimates suggested with bars and restaurants, legal firms and advertising, in particular, performing less well.
“The household saving ratio fell a little in the latest period, though remains relatively high by historic standards. Meanwhile, real household disposable income per head showed no growth.”
Reeves said: “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge. But this is only fuelling our fire to deliver for working people.
“The Budget and our plan for change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform.”