UK economy fails to grow in Q3 but sidesteps start of a recession

Britain’s sluggish economy failed to grow in the July-to-September period but at least managed to avoid the start of a recession, figures from the Office for National Statistics showed on Friday.

The 0 per cent change in gross domestic product in the third quarter compared with a forecast for a 0.1 per cent fall in a Reuters poll of economists, which many analysts said was likely to represent the start of a recession.

In the month of September on its own, the economy grew by 0.2 per cent from August when growth was revised down to 0.1 per cent from 0.2 per cent.

The Reuters poll had pointed to no change in GDP in September.

Paul Dales, chief economist with consultancy Capital Economics, said the fine details of the data showed GDP did decline by a marginal 0.02 per cent in the third quarter even if the figure was rounded to show no change.

“But the key point is that the economy is not weak enough to reduce core inflation and wage growth quickly,” Dales said.

“As such, we don’t expect the Bank of England will be able to cut interest rates until late in 2024 rather than in mid-2024 as widely expected.”

The BoE said last week it expected zero economic growth next year – a tough backdrop for Prime Minister Rishi Sunak who is widely expected to call a national election in 2024 – but it kept interest rates at a 15-year high as it continued to battle an inflation rate that is more than three times its 2 per cent target.

The BoE had been expecting a flat reading for growth in the third quarter.

In the three months to September, output in Britain’s huge services sector fell by 0.1 per cent, industrial production was broadly flat and construction grew by 0.1 per cent, the Office for National Statistics said.

Finance minister Jeremy Hunt, responding to Friday’s data, said high inflation remained the single biggest barrier to growth and he would announce plans to unlock investment and get people back into work in his Nov. 22 budget update statement.

Britain’s economy stood 1.8 per cent above its level in late 2019, the ONS said, making its post-COVID recovery stronger than that of Germany but a long way behind the United States where the economy has grown by more than 7 per cent from its pre-pandemic level.