Sir Keir Starmer warned on Monday that the prospect of a rapid economic recovery remains elusive, as official figures confirmed the UK economy stagnated in the third quarter.
Downing Street stopped short of denying the possibility of a tax increase, raising concerns among businesses that the government’s package of fiscal measures may not be enough to steady the ship.
Data from the Office for National Statistics (ONS) showed that GDP stabilized at 0.0% between July and September, down from the initial estimate of 0.1%. This adjustment raises the specter of recession, especially after the Office for National Statistics reduced second-quarter growth to 0.4% from 0.5%. The legal and advertising sectors, along with bars and restaurants, were cited as major factors influencing production.
Paul Dales, chief UK economist at Capital Economics, noted that despite a strong first half of the year, momentum has dissipated. “The economy stalled in the second half of the year due to continued high interest rates, weak external demand and concerns about the budget,” he said. Dales expects 2025 to be a “better year” but warns that the economy is losing steam in the final months of 2024.
With Paul Johnson, director of the Institute for Fiscal Studies, warning that Labour’s chancellor, Rachel Reeves, may have to “go back for more money” from the public, the government has been reluctant to rule out further tax rises. When pressed, Starmer’s spokesman highlighted Reeves’ statement that her October budget was a “once in Parliament” and that she had “wiped the slate clean” by tackling the £22bn fiscal deficit. However, he acknowledged that there is a possibility that additional tax increases may be necessary.
Reeves’ inaugural Budget provided around £40bn in tax rises, including a £25bn increase in employers’ National Insurance contributions. These measures were linked to faltering business confidence, with the Confederation of British Industry announcing its weakest growth forecast since November 2022. The Bank of England also revised down its forecast for the fourth quarter to 0.0% from 0.3%, indicating a slowdown in the UK economy. The latter part of 2024.
Starmer’s spokesman insisted the government was firmly focused on stimulating economic growth that “benefits the working class”, but acknowledged that repairing the damage done over the past 15 years “won’t happen overnight”. Reeves echoed this sentiment, describing the scale of the task as “huge”, but adding that it strengthened Labour’s determination to “deliver for working people”.
Liz McKeown, director of economic statistics at the Office for National Statistics, explained that continued weakness in key services sectors is exacerbating the slowdown. Meanwhile, although household disposable income rose annually by 4.5% in the third quarter, the savings ratio remains well above its pre-pandemic average, suggesting that many households are bracing for further financial turmoil.