UK Treasury chief unhappy with weak third-quarter economic growth

Britain's Treasury chief Rachel Reeves said Friday that she is not satisfied by official figures showing the British economy's rebound from recession slowed down sharply in the third quarter of the year, with most sectors stagnating.

The Office for National Statistics said growth during the July to September period was just 0.1 per cent. That was lower than the 0.5 per cent recorded in the previous three-month period and below market expectations for 0.2 per cent.

The statistics agency said overall output in September actually shrank, a development that has further fueled accusations from critics of the new Labour government that its pessimism dragged the economy down in its first few weeks in office.

 

On coming to power in July for the first time in 14 years, the government described its economic inheritance from the former Conservative administration as the bleakest in decades, requiring urgent action to fix the public finances. The Conservatives' Treasury spokesperson, Mel Stride, sought to pin the blame for the slowdown on the new government, saying the deterioration in business and consumer confidence was a direct result of it talking the economy down."  Reeves used the budget to raise taxes sharply, mainly on business, as well as increasing spending on public services, such as the state-run National Health Service, and borrowing on investments.

Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers, Reeves said following Friday's figures.

Prime Minister Keir Starmer has said raising economic growth is his government's number one priority over the next five years. Since the global financial crisis in 2008-9, the British economy has underperformed relative to previous years and actually slipped into a modest recession in 2023.

The Resolution Foundation think tank said the British economy has been a rollercoaster over the past year and that its medium-term performance has been staid and stagnant  As a result of the third-quarter slowdown, the think tank said the UK has fallen below the US at the top of the growth leaderboard of the Group of Seven leading industrial economies.

This all serves to highlight that the government's mission to renew strong economic growth is both extremely hard, and absolutely necessary," said Simon Pittaway, the think tank's senior economist.

One factor hobbling the economy, many economists say, is Britain's departure from the European Union in 2020, which has made trade more difficult. Though the post-Brexit trade agreement between the two sides ensured there would be no tariffs placed on goods, exporters are finding life tough.

As part of Brexit, the UK also left the frictionless single market and the customs union, which means firms have to file forms and customs declarations for the first time in years.

On Thursday evening, Bank of England Governor Andrew Bailey said the changing trading relationship with the EU has weighed on the economy.

It underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people," he said.

Starmer has said he wants to improve the trading relationship with the EU but has ruled out the possibility of Britain rejoining the single market or the customs union, or of a return of the freedom of movement of people.

For many, that means there can only be limited improvements to the current trading arrangements.