UK economic growth eased to 0.1% between July and September, according to official figures, as a sharp drop in car production weighed heavily on output. The figure came in below analysts’ forecasts of 0.2% and landed awkwardly for Chancellor Rachel Reeves, who had repeatedly framed economic growth as her top priority, prior to her Budget announcement.
The Office for National Statistics reported a “marked” fall in car production in September after a major cyber-attack on Jaguar Land Rover. The incident halted production for five weeks, resulting in a 28.6% decline in car manufacturing during the month. Overall production output fell by 2% in September. Even excluding this disruption, other sectors delivered only modest growth.
Services, the most significant part of the UK economy, expanded but at a slower pace than in the previous quarter. Areas such as retail, hospitality, arts and entertainment and real estate all grew, though momentum faded compared with earlier in the year. Construction also increased, but again at a weaker rate.
Services and construction lose momentum
Consumer spending remains subdued, and economists warn that household caution is likely to continue dampening growth through the rest of the year. The latest figures indicate a slowdown from the 0.3% growth recorded between April and June, as well as the more substantial 0.7% rise seen at the start of 2024.
The economy shrank by 0.1% in September alone, reflecting the immediate impact of the JLR cyber-attack. Although manufacturing was the main driver of the decline, the ONS also highlighted volatility in the pharmaceutical sector, which added further downward pressure. ONS Director of Economic Statistics, Liz McKeown, noted a strong performance in business rental and leasing, live events, and retail, but said declines in research and development and personal care services offset these.
Some analysts believe the unexpectedly weak GDP figures increase the likelihood of an interest rate cut from the Bank of England next month. Rob Wood, chief UK economist at Pantheon Macroeconomics, said the data “all but seals a December rate cut,” especially when combined with this week’s weaker labour market figures.
For many businesses, the slowdown also reflects the lingering impact of last year’s Budget measures, including higher employer National Insurance contributions and an increase in the national living wage. These cost pressures, combined with soft consumer demand, have kept activity restrained.
Political response and Budget pressures
Responding to the ONS report, Chancellor Reeves emphasised that the UK recorded the fastest growth in the G7 in the first half of the year, but acknowledged the need for further progress. She said her forthcoming Budget would focus on decisions that support working people, reduce waiting lists, lower the national debt and ease pressure on household finances.
Shadow Chancellor, Mel Stride, criticised the Government, claiming the Prime Minister and Chancellor were “in office but not in power”. He also argued that Sir Keir Starmer had undermined Reeves by limiting her influence over the Budget.
Economists warn that momentum is unlikely to improve significantly. Ruth Gregory, deputy chief UK economist at Capital Economics, said the economy is “struggling to gain decent momentum” even without the impact of the JLR disruption. She added that expected tax rises in the Budget could trim GDP by around 0.2% in 2026, leaving little reason to expect a meaningful acceleration in growth.
Overall, the latest figures paint a picture of an economy growing but losing pace, with fragile consumer confidence, rising business costs and unexpected shocks all tempering the recovery.
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