UK economy contracts by 0.1% in September

The UK economy shrank by 0.1% in September 2024, marking a challenging milestone for Labour Chancellor Rachel Reeves in her first months at the helm of the Treasury. The figures, released today by the Office for National Statistics (ONS), underscore lingering economic headwinds and complicate the government’s efforts to bolster growth.

The contraction follows a modest expansion of 0.2% in August 2024, reflecting persistent pressures on key economic sectors.

The ONS attributed September’s downturn primarily to declines in manufacturing output and information and communication services. Manufacturing, in particular, showed a notable pullback, driving a 0.5% overall decrease in production output for the month. This sectoral weakness offset minor gains in other parts of the economy, including a 0.1% increase in construction output. Services, which make up a significant portion of the UK economy, saw no growth after a slight uptick in August.

Over the third quarter (July to September), GDP grew by a mere 0.1%, trailing behind City expectations and signalling broader challenges for the economy. The sluggish quarter highlighted the limited impact of post-election policy measures, leaving Chancellor Reeves and the Labour government facing intensified scrutiny.

Friday’s data paints a sobering picture of the economic landscape just three months after Labour’s July 4 election victory. It complicates the political backdrop for Reeves, who has already been contending with backlash over her budgetary measures, including a National Insurance hike affecting employers.

Following the latest GDP figures, Mike Randall, CEO at Simply Asset Finance, commented: “Following recent Budget uncertainty, the news of stagnating GDP presents another challenge for SMEs, making it more difficult to tap into pent-up demand and recover lost ground.”

“The Autumn Budget in October presented some significant hurdles for business, notably an NI increase, which will need to be navigated. The more positive developments however, including a commitment to infrastructure spending, should provide more trickle-down growth opportunities for SMEs.

“But this progress still hinges on access to investment and finance. It’s now crucial that the government, the business community, and financial providers collaborate closely to turn this potential growth into a tangible reality.”