UK GDP fell 0.1% month-on-month in September, below expectations, following a flat August, according to the latest data from the Office for National Statistics. The decline left growth at just 0.1% for the third quarter, its weakest pace since January.
The slowdown was disappointing, according to Kallum Pickering, chief economist at Peel Hunt, but not a sign that recent fiscal jitters are undermining the economy. “While policy uncertainty is a headwind to growth, the underlying picture does not suggest that worse-than-expected Budget worries are the cause of the weakness,” he said.
Although household consumption picked up slightly, government spending growth slowed sharply and business investment fell 0.3% in the quarter. Industrial output also declined 2% in September, dragging down overall activity.
Pickering said: “Preliminary data need to be taken with a pinch of salt as they are often prone to heavy revision, but the weak third-quarter print tilts the risks to our call for 1.5% growth in 2025 to the downside."
Even so, Pickering said the figures strengthened Peel Hunt’s view that the Bank of England will cut interest rates by 25 basis points to 3.75% at its 18 December meeting. “Falling inflation should open the door for benchmark interest rates to decline substantially as the Bank eases its monetary policy,” he said. “While tax increases will slow growth, lower rates can be a powerful offset.”
Other analysts pointed to specific shocks behind the weaker September data. Nicholas Hyett, investment manager at Wealth Club, said the cyberattack on Jaguar Land Rover “slammed the brakes” on industrial activity.
“A shrinking economy is not what any chancellor wants days before a Budget,” Hyett said. “The massive knock-on effects of events at a single company show how vulnerable the UK economy is at the moment. Large national champions are great, but they need to form part of a diverse economic ecosystem. The government should be looking hard at supporting small businesses in particular in the Budget.”
Danni Hewson, head of financial analysis at AJ Bell, said the figures add to the “immense weight on Rachel Reeves’ shoulders” as she prepares her second Budget later this month.
“Growth was held up by this government as the way to build back public services without increasing taxes,” she said.
“But the sums never seemed to add up, and the chancellor is now faced with breaking manifesto commitments while trying to foster the confidence needed to deliver growth.”