Britain’s economy flatlined in the first three months under the new Labour government, leaving the country on the verge of recession and forcing Rachel Reeves to once again defend her tax-raising Budget.
Growth from July to September was revised down from 0.1 per cent to zero by the Office for National Statistics (ONS). Living standards also fell.
With the economy at risk of contracting in the next quarter, it leaves the UK at close risk of two consecutive periods of negative growth – a scenario that meets the definition of a recession.
It is a fresh blow for Sir Keir Starmer’s government, which has put economic growth and raising living standards for everyone at the heart of its mission.
It came a day after the Confederation of British Industry (CBI) warned that the jittery economy was heading for the “worst of all worlds” in 2025, and as early figures pointed to a bleak festive period for high streets – with footfall 11.4 per cent down on last year over the final full week before Christmas, according to Rendle Intelligence and Insights.
Meanwhile, Britain’s struggling pubs and restaurants have pleaded with the chancellor to rethink her planned increase to employers’ national insurance contributions (NICs).
Kate Nicholls, chief executive of UKHospitality, said on Monday that the revised growth figures “confirm what we already suspected – that the economy is in a fragile place and in dire need of growth”.
She added: “With business confidence already plummeting and a third of hospitality businesses operating at or below break-even, the planned changes to employer national insurance contributions will make generating economic growth even more difficult.”
She urged the government to “rethink its approach”, saying: “Delaying these changes to allow for proper consultation and engagement with businesses is much needed to protect hardworking venues and team members.”
Shadow chancellor Mel Stride said the figures “demonstrate the latest failure at the hands of this chancellor”.
“Having inherited the fastest-growing economy in the G7, growth has tanked on Labour’s watch. That means greater pressure on our public finances, and an economy which, far from becoming more secure, is becoming significantly more vulnerable,” he warned, adding: “The warning lights are flashing.”
Ms Reeves said the challenge facing her government “after 15 years of neglect is huge”, but that the scale of the task is “only fuelling our fire to deliver for working people”.
“The Budget and our plan for change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform,” she said.
Jonathan Portes, a professor of economics at King’s College London, said a recession in 2025 is unlikely, but he warned that the election of Donald Trump as US president “increases the risks” – referring to fears of a global trade war following Mr Trump’s threats to introduce tariffs on goods coming into the US.
GDP is estimated to have shown no growth in Quarter 3 (July to Sept) 2024, revised down from the initial estimate of +0.1% growth.
— Office for National Statistics (ONS) (@ONS) December 23, 2024
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Overall, Professor Portes said, the latest ONS revision is “tiny and irrelevant”, but he told The Independent that it “confirms Labour inherited an economy that has struggled to grow fast enough to generate sustained growth in living standards”. He called for the government to come up with a strategy to boost growth in the medium to long term.
Paul Johnson, director of think tank the Institute for Fiscal Studies, warned that the chancellor may need to “come back for yet more money” next autumn after she unveiled historic tax rises at the last Budget. He added that Ms Reeves will be stuck in a difficult place in terms of funding public services if the economy doesn’t pick up.
But Russ Mould, investment director at investment firm AJ Bell, called for a period of stability around taxes and regulation as a way to boost growth. He added that the government must ensure it fosters close relations with the incoming Trump administration in order to promote trade.
He told The Independent: “We’ve had so many changes in terms of tax rules; a period of people knowing what the rules are might not be a bad thing.
“But obviously, with growth being downgraded, people are asking the government to step in and do something. So it’s a bit of a catch-22 situation. A period of just letting this ride might be helpful in terms of regulation purposes.”
Alpesh Paleja, interim deputy chief economist at the CBI, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.
“Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.”
Mr Mould said that while Labour has clearly inherited a “rotten hand” in respect of the economy, he expressed doubt as to whether the party has gone about fixing it in the right way.
“Labour will clearly argue that it takes time to create growth, and they’ve inherited a rotten hand – I think they have been unfairly punished for the state of very tatty public finances, and their honesty there is commendable,” he told The Independent.
“I understand the need to raise money – but I’m not sure they went about it in the right way. With taxes, there are always unintended consequences.”
