UK economic growth almost ground to a halt in the third quarter (3Q) after looming tax hikes and the Jaguar Land Rover cyberattack weighed on activity in September, piling more pressure on the Labour government ahead of a crucial budget on Nov 26.
Gross domestic product rose just 0.1% compared with 0.3% in the second quarter, the Office for National Statistics said on Thursday. Economists and the Bank of England (BOE) had forecast a gain of 0.2%. In September alone, the economy contracted 0.1% as modest growth in services was offset by a sharp decline in manufacturing.
The pound extended losses to drop 0.2% to US$1.3102 after the figures were released, setting it up for a third daily drop in a row.
The figures suggest Britain has reverted to more pedestrian growth after outperforming every other Group of Seven country in the first half. From the housing market to surveys of business sentiment, evidence is mounting that consumers and companies are putting off spending decisions amid fears of big tax rises in Chancellor of the Exchequer Rachel Reeves’ Nov 26 budget.
The chancellor has little choice but to break an election promise and raise broad-based taxes after a growth downgrade and costly policy U-turns left her billions of pounds in the red against her self-imposed fiscal rules.
The Labour government is under intense political pressure ahead of the budget, especially after Downing Street advisers were blamed for briefing the media against Health Secretary Wes Streeting, who they accused of plotting to oust Prime Minister Keir Starmer. The PM called the briefings “completely unacceptable”.
Weak growth may further reassure BOE governor Andrew Bailey and fellow policymakers that inflationary pressures are retreating. Traders boosted bets on BOE rate cuts after figures on Tuesday showed unemployment rising to its highest rate since the pandemic. They are pricing in a more-than 80% chance of a move next month.
“These disappointing figures pave the way for a December interest rate cut by fuelling fears over economic conditions sufficiently enough to push a majority of rate-setters to authorise another policy loosening,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.
Jaguar cars
A key factor in September was a 27% plunge in British car production caused by the cyberattack that crippled Jaguar Land Rover (JLR), the largest UK automaker.
JLR is only slowly resuming operations after it was forced to stop making any vehicles for more than five weeks. The shutdown hit hundreds of suppliers and caused chaos among smaller firms that rely on the luxury brand for orders, prompting the government to step in and guarantee a £1.5 billion (RM8.13 billion) emergency loan.
As a whole, manufacturing of motor vehicles, trailers and semi-trailers dropped almost 30% — the sharpest fall since 2020, shaving off 0.17 points of GDP in September.
Manufacturing output overall declined 1.7% in September, while industrial production dropped 2%. At the same time, services output rose 0.2% on the month, thanks to strong activity from business rental, live events and retail sales.
Source: theedgemalaysia