The UK economy stagnated between July and September, according to the latest figures. The Chancellor acknowledged that higher interest rates were impacting growth, but he also noted that the economy had performed better than expected this year. The Bank of England recently announced that the UK is likely to experience zero growth until 2025, although a recession is expected to be avoided. Until September, the Bank of England had raised interest rates 14 times in a row to combat soaring inflation. However, while raising rates can reduce inflation, it also affects economic growth by making borrowing more expensive for consumers and businesses.
The Office for National Statistics reported subdued growth across all sectors of the economy. The services sector experienced a small decline, while manufacturing and the construction sector recorded marginal growth.
The Chancellor, Jeremy Hunt, stated that the primary reason for the slowdown in growth was the impact of higher interest rates. He noted that the economy had been stronger than expected, which provides a solid foundation for the future. Hunt mentioned the possibility of reducing taxes in the Autumn Statement but emphasised that cutting business taxes was his priority.
Labour’s shadow chancellor, Rachel Reeves, criticised the figures, calling them “further evidence that the economy is not working.” The Liberal Democrat Treasury spokesperson, Sarah Olney, accused the Conservatives of leading the country down a “no-growth path.”
Although the Bank of England’s rate rises have affected growth, they have reduced the risk of a formal technical recession. The forecast for the final three months of the year is expected to be between 0% and 0.1%, in line with other major European countries grappling with rising rates. The government may feel a sense of relief that it has avoided a recession but is now facing the challenge of addressing the growth problem.