UK economy flatlines but avoids recession this year

The UK economy has flatlined but has avoided a recession this year as the chancellor warned high inflation remained the main obstacle to growth.

Fresh data from the Office for National Statistics shows that gross domestic product (GDP) – which measures the value of goods and services produced – rose by 0.2% over the month, amid a boost from the film production, health and education industries although growth in August was revised down to 0.1% from 0.2%.

While the figures indicate the economy failed to grow at all in the third quarter, it does mean the UK dodges a recession this year which is defined as two consecutive quarters of negative GDP.

Analysts had predicted a 0.2% fall for the latest period.

Economists said the manufacturing and construction sectors particularly helped to support growth over the end of the quarter.

Sclerotic growth gives chancellor little room for manoeuvre

Paul Kelso

Business correspondent

@pkelso

Zero growth in the third quarter of 2023 was marginally better than expectations of a small contraction, but confirmed the UK’s flatlining post-COVID economic trajectory.

There may be some relief that the prospect of recession, predicted by the Bank of England among others earlier in the year, has receded, but there is precious little to celebrate beneath the headline figure.

The torpor in the three months to September affected all significant sectors more or less equally.

Services activity fell by 0.1% cancelling out a 0.1% increase in construction, while production was flat.

Meanwhile, spending by companies, individuals and the public sector, was depressed, with business investment, household and government spending all down.

This may further evidence that the interest rate increases pushed through by the Bank of England to tackle inflation are biting, making everyone more cautious, but it also underlines the challenge to the chancellor two weeks out from his autumn statement.

Jeremy Hunt has made clear that a growing economy is the key to any significant move, whether to stimulate business growth or consumer spending via tax cuts, which he has consistently ruled out to the dismay of Conservative backbenchers.

Sclerotic growth gives him very little room for manoeuvre, or much chance to change the course of an economy that appears to be adrift, waiting for the weather to change.

ONS director of economic statistics Darren Morgan said: “The economy is estimated to have shown no growth in the third quarter.

“Services dropped a little with falls in health, management consultancy and commercial property rentals.

“These were partially offset by growth in engineering, car sales and machinery leasing.

“In the month of September the economy grew slightly, with increases in film production, health and education.

“This growth was partially offset by falls in retail and computer programming.”

The Bank of England said last week it expected zero growth in the economy next year but kept interest rates at a 15-year high as it continued to battle an inflation rate more than three times its 2% target.

The central bank had forecast a flat reading for growth in the third quarter.

Responding to the latest ONS data ahead of the autumn budget statement on 22 November, Jeremy Hunt said: “High inflation is the single greatest barrier to economic growth.

“The best way to sustainably grow our economy right now is stick to our plan and knock inflation on its head.

“The autumn statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs.”

He added: “The British economy is much more resilient than many people predicted.”

Labour’s shadow chancellor Rachel Reeves said: “These figures are further evidence that the economy is not working under the Conservatives and working people are worse off.”

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.”