On November 6, 2024, the Bank of England reported from the City of London, a hub for business and finance that is often simply called “the City” and informally known as the Square Mile. (Photo by Mike Kemp/In Pictures via Getty Images)
Mike Kemp | In Photography | Getty Images
The British economy showed weaker-than-expected performance in the third quarter of this year, recording only slight growth following a strong start to the year, according to preliminary data released on Friday.
The Gross Domestic Product (GDP) growth for the quarter ending in September was merely 0.1%, falling short of the 0.2% increase anticipated by economists from Reuters, and trailing behind a 0.5% rise in the prior quarter.
Additionally, the primary services sector in the UK also experienced a growth of just 0.1% for the quarter, as reported by the Office for National Statistics. The construction sector experienced a 0.8% growth, while production saw a modest decline of 0.2%.
This disappointing economic performance follows a significant drop in UK inflation, which fell to 1.7% in September, marking the first time it dipped below the Bank of England’s target of 2% since April 2021. This decrease in inflation has set the stage for the central bank to cut interest rates by 25 basis points on November 7, lowering the key rate to 4.75%.
Last week, the Bank of England projected that the Labor government’s upcoming tax budget is likely to boost GDP by an estimated 0.75 percentage points over the coming year. Policymakers acknowledged that the government’s fiscal measures have contributed to rising inflation expectations.
British Finance Minister Rachel Reeves expressed her dissatisfaction with the latest figures on Friday, stating, “In my Budget, I made the difficult choices to repair our foundations and stabilize our public finances. We are now focused on delivering growth through investment and reform, creating more jobs and increasing wages, revitalizing the NHS, leading to a decade of national renewal and securing our borders,” she mentioned in her statement.
Suren Tiloo, the economics director at the Institute of Chartered Accountants in England and Wales, indicated that it seems “unlikely” there will be a rate cut at the Bank of England’s forthcoming meeting in December. He cited ongoing inflation risks and increasing global challenges, which may hinder policymakers from enacting successive rate reductions.
“These figures suggest a weakening in the economy prior to the Budget, as both business and consumer confidence declined, slowing production notably in September,” Tiloo commented via email.
The aftermath of the recent U.S. elections has introduced considerable uncertainty regarding how President-elect Donald Trump’s next term might influence the global economy. His proposed tariffs may lead to significant inflation, potentially damaging the European economy, although some analysts suggest they could create opportunities for the UK economy.
Last week, Bank of England Governor Andrew Bailey refrained from commenting in detail on the implications of President Trump’s tariff policies but acknowledged potential risks regarding global divisions.
“We’ll see how things unfold. I won’t make any presuppositions about what may or may not happen,” he remarked during a recent press conference.
As of 7:33 a.m. in London, the British pound was slightly up by 0.1% against the dollar but had lost 0.15% against the euro following the release of Friday’s GDP figures.
