Bank of England in London, United Kingdom on 6 November 2024. The City of London is a city, formal county and local government district comprising the CBD, the main central business district of London. The city of London is widely referred to simply as the city is also colloquially known as the Square Mile. (Photo by Mike Kemp/Pictures via Getty Images)
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Britain’s economy showed a surprise contraction in September and grew only modestly in the third quarter after a strong recovery at the start of the year, preliminary data showed on Friday.
According to the Office for National Statistics, gross domestic product fell 0.1 percent in September, following growth of just 0.2 percent the previous month. Economists polled by Reuters had expected growth of 0.2% for September.
For the third quarter as a whole, the British economy grew by just 0.1% compared to the previous quarter. This is below the 0.2% growth expected by economists and follows a 0.5% expansion in the second quarter of the year.
Britain’s dominant services sector also grew by just 0.1 percent in the quarter, the Office for National Statistics said. Construction rose 0.8 percent, while output fell 0.2 percent month-on-month.
It comes after UK inflation fell sharply to 1.7% in September, below the Bank of England’s 2% target for the first time since April 2021. points on November 7, bringing its key rate to 4.75%.
The Bank of England said last week it expected the Labor government’s tax hike budget to boost GDP by 0.75 percentage points over a year. Policymakers also noted that the government’s fiscal plan has increased their inflation forecasts.
Britain’s Chancellor of the Exchequer Rachel Reeves said on Friday she was “not satisfied” with the numbers.
“In my Budget, I made the tough choices to fix the foundations and stabilize our public finances. Now we’re going to grow through investment and reforms to put more jobs and more money in people’s pockets. Let’s get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” he said in a release.
Analysts flagged fundamental weakness in the economy and rising risks from geopolitical tensions as potential impediments to further growth.
UK Economist Ruth Gregory, deputy chief of capital economics, said: “It is clear that the pace of the economy is somewhat slower than we previously thought.
“Overall, despite the contraction in September, we still expect GDP growth to pick up in the coming quarters as government debt-fueled spending boosts activity,” Gregory added. And as the headwinds caused by inflation and high interest rates fade away.”
A rate cut now looks “unlikely” at the BOE’s next meeting in December, according to Soren Thero, director of economics at the Institute of Chartered Accountants in England and Wales. He said that inflationary risks and increasing global warming will prevent policymakers from cutting interest rates.
“These data suggest that the economy picked up ahead of the budget, as weak business and consumer confidence helped weaken output in the third quarter, particularly in September,” Tharoo said in emailed comments. of.”
The recent US election results have fueled considerable uncertainty about the global economic impact of another term of President-elect Donald Trump. While Trump’s proposed tariffs are expected to cause massive inflation and hit the European economy hard, some analysts have said such measures could offer opportunities for the British economy.
Bank of England Governor Andrew Bailey last week played down the bank’s views on Trump’s tariff agenda, but cited the risks of a global split.
“Let’s wait and see where things go,” he told reporters during a press briefing.
gave British pound By mid-morning in London, the dollar was largely flat against the US dollar. The euro strengthened 0.4 percent against the pound after Friday’s GDP release.
