UK Growth Stalls at 0.1% in Third Quarter of 2024 as Budget Jitters and High Rates Bite: What the ONS Data Mean for Reeves's G7 Ambition

The British economy ground almost to a halt in the third quarter of 2024, according to official figures that exposed how quickly the post-recession recovery lost momentum. Data from the Office for National Statistics (ONS), published on 15 November 2024 and reported by The Guardian, showed gross domestic product growing by just 0.1% between July and September, down sharply from the 0.5% expansion recorded in the second quarter. The near-standstill was a direct blow to Chancellor Rachel Reeves, who had made the ambition of putting the United Kingdom at the top of the G7 growth league table a centrepiece of her economic pitch.

The reading matters for several reasons. It covered the first full quarter of the new Labour government, giving an early — and unflattering — snapshot of the economic conditions the party inherited and helped shape. It came in below the 0.2% quarter-on-quarter growth that City economists had expected. And it was accompanied by an outright monthly contraction: GDP shrank by 0.1% in September, against forecasts for 0.2% growth. Together, these numbers turned what had been a story of spring and summer recovery into a story of hesitation, caution and stalled momentum.

What the ONS figures actually showed

The ONS release described an economy pulling in several directions at once. Over the three months to the end of September, output in both services and manufacturing slowed, indicating that uncertainty ahead of Labour's first budget and the continued weight of high interest rates had combined to sap the momentum built up since the spring. In September alone, the statistics office said a fall in manufacturing output and a lack of work in the information technology sector dragged on activity, only partly offset by a rise in car sales.

Beneath the headline, there were glimmers of resilience. Business investment rose 4.5% compared with the same period in 2023 — a notable gain at a time when companies were widely reported to be delaying decisions until the fiscal picture became clearer. Consumer-facing services grew by 0.5% during the quarter, evidence that household spending did not collapse. But that was not enough to lift the overall services sector above 0.1% growth, and services dominate the British economy.

The external picture was weaker still. Britain's trade position deteriorated further after a third consecutive fall in exports, although the damage to the headline numbers was offset by a fall in imports as consumers cut back on foreign goods. And because the population is growing, the share of the economy per head actually declined by 0.1% in the third quarter — a reminder that even modest aggregate growth can leave the average person no better off.

• Quarterly GDP growth (Q3 2024): 0.1%, against 0.5% in Q2 and City expectations of 0.2%.
• Monthly GDP (September 2024): minus 0.1%, against forecasts of plus 0.2%.
• Business investment: up 4.5% year on year.
• Consumer-facing services: up 0.5% on the quarter; overall services up 0.1%.
• GDP per head: down 0.1% as population growth outpaced output.
• Exports: a third consecutive quarterly fall, with imports also declining.

Sixth in the G7: the growth league problem

The international comparison was the most politically awkward part of the release. The ONS figures showed the UK ranking sixth out of seven in the G7 for third-quarter growth, ahead of Italy but behind France, Germany and the United States, which expanded by 0.4%, 0.2% and 0.7% respectively; the grouping also includes Canada and Japan. For a chancellor who had promised to make Britain the fastest-growing economy among the world's advanced powers, landing sixth in the quarter was a painful scorecard.

The political battle over the numbers began immediately. Mel Stride, the shadow chancellor, argued that Labour had inherited the fastest-growing economy in the G7 and that, in his words, because of their choices growth had now slowed significantly. Stride said Labour's national insurance “jobs tax” would make it more expensive for businesses, which would then fuel higher prices, higher inflation, higher mortgage costs and slower growth. The Conservative framing was clear: the slowdown, on this reading, was self-inflicted by the government's tax and spending signals rather than an unavoidable external shock.

Whether that verdict is fair is precisely what economists spent the following weeks debating. The quarter ran from July to September, before the budget itself was delivered, which means the drag came not from enacted policy but from anticipation of it — a distinction that cuts both ways. A government can be blamed for unsettling businesses with its announcements, but it can also argue that the underlying conditions it inherited, including the high-interest-rate environment, did most of the damage.

Budget jitters: the confidence channel

The strongest evidence for the uncertainty explanation came from business organisations themselves. Ben Jones, lead economist at the Confederation of British Industry (CBI), said the UK economy stalled over the third quarter and that uncertainty ahead of the budget probably played a big part, with firms widely reporting a slowdown in decision making. Jones added that he hoped the pause would prove to be a blip, and that the CBI still expected the economy to return to a path of modest growth in the year ahead — but he warned that downside risks to the outlook had increased.

Surveys pointed the same way. Recent business surveys showed the labour market weakening and both consumer and business confidence falling in the run-up to the budget. Companies facing a possible increase in employment taxes have an obvious incentive to postpone hiring and capital commitments until the numbers are known; households worried about tax and mortgage costs tighten their belts in sympathy. The result is a coordination problem in which everyone waits for everyone else, and the waiting itself suppresses activity.

Business groups complained that the budget measures, including an increase in employer national insurance contributions, added to their costs and deterred investment. This is the mechanism Stride pointed to: higher payroll costs either squeeze margins, get passed into prices, or discourage hiring — and in practice probably some combination of all three. The 4.5% annual rise in business investment suggests companies had not stopped spending altogether during the quarter, but the direction of travel in confidence indicators made the sustainability of that spending an open question going into 2025.

The interest rate backdrop

Fiscal uncertainty was only half the story; monetary policy supplied the other. The Bank of England had cut interest rates twice during 2024, most recently reducing the base rate to 4.75%. Yet borrowing costs remained high compared with pre-pandemic levels, and the pace of easing was slower than many businesses and mortgage-holders had hoped. Expensive credit suppresses housing transactions, deters leveraged investment and encourages saving over spending — all visible in the soft September output numbers.

Financial markets, moreover, were not promising rapid relief. According to the money-market pricing cited in the reporting, traders saw only a 17.5% chance of a UK rate cut the following month, with an 82.5% chance of rates being held. In other words, the economy would have to demonstrate it could regain momentum largely on its own, with the Monetary Policy Committee in no hurry to provide additional stimulus. For a government promising growth, that is an uncomfortable configuration: fiscal room constrained by the commitment to stabilise the public finances, and monetary support arriving only gradually.

Services, manufacturing and the momentum question

The sectoral detail explained why forecasters became more cautious about the fourth quarter. Manufacturing output fell in September, and the ONS highlighted a lack of work in the IT sector — a striking detail, given that technology had been one of the brighter spots in the British economy in previous years. Consumer-facing services, which had been the engine of the recovery as households spent the savings accumulated during the pandemic, managed 0.5% growth for the quarter but could not pull the broader services sector above 0.1%.

The National Institute of Economic and Social Research (NIESR) said the weak data for the three months to September would translate into a loss of momentum going into the fourth quarter — meaning the soft patch was unlikely to be confined to a single quarter's arithmetic. NIESR economist Hailey Low said manufacturing would be among the sectors to slow further, and warned that policymakers needed to look beyond short-term fixes if raising long-run trend growth was the ultimate goal. That is a critique that applies to governments of any colour: quarterly GDP volatility, on this view, distracts from the deeper productivity weaknesses that determine living standards.

From the financial sector, abrdn deputy chief economist Luke Bartholomew observed that an easing in growth had been expected in the second half of the year, but that the extent of the slowdown was more pronounced than expected. The distinction between expected and surprising matters: professional forecasters had already pencilled in a softer second half after the strong first and second quarters, so the disappointment was about degree, not direction. But degree is what determines whether an economy merely pauses or slides into a longer stagnation.

The government's response

Rachel Reeves's reaction combined acknowledgement with defiance. Improving economic growth, she said, is at the heart of everything she is seeking to achieve, which is why she was not satisfied with these numbers. Defending her fiscal strategy, the chancellor said she had taken the difficult choices at her budget to fix the foundations and stabilise the public finances, and that growth would then be delivered through investment and reform — to create more jobs and more money in people's pockets, get the NHS back on its feet, rebuild Britain and secure the borders, in what she called a decade of national renewal.

The sequencing in that argument is important. On the government's account, the third-quarter stumble was the price of an uncertain autumn: businesses paused while waiting to hear the tax decisions, and once those decisions were known the fog would lift and deferred investment would resume, supported by public investment and planning reform. Critics counter that the budget itself — particularly the employer national insurance increase — added a permanent cost shock to precisely the firms the government needs to hire and invest. Both stories were live at the time of publication, and the fourth-quarter and early-2025 data would act as the arbiter.

Assessment: a pause, or something worse?

Taken together, the third-quarter numbers depict an economy caught between two forces. On one side stood genuine strengths: business investment up 4.5% year on year, consumer-facing services still expanding, the labour market only beginning to soften, and a central bank that had started cutting rates. On the other stood accumulating drags: the highest borrowing costs in a generation, a third consecutive fall in exports, a shrinking IT workload, declining confidence surveys and a population growing faster than output.

The balance of expert opinion in the immediate aftermath leaned towards caution rather than alarm. The CBI hoped for a blip but flagged increased downside risks; NIESR expected the weakness to carry into the fourth quarter with manufacturing slowing further; abrdn found the slowdown more pronounced than expected. Nobody quoted in the reporting was forecasting a return to recession on the basis of these figures alone, but neither was anyone confident that 0.1% would quickly bounce back to the 0.5% pace of the spring and summer.

For the government, the strategic implication was uncomfortable. The pledge to top the G7 growth league requires sustained expansion well above the third-quarter rate, and delivering it depends on variables — business confidence after the budget, the pace of Bank of England rate cuts, a recovery in exports — that the chancellor does not fully control. What she does control is the credibility of her claim that the difficult fiscal choices were a precondition for growth rather than an obstacle to it. The third-quarter figures of 2024 did not settle that argument; they made it sharper.

Outlook and risks

The trajectory of the UK economy into 2025 will depend heavily on the fiscal decisions announced in the autumn Budget and on the global trading environment. If the government pursues significant tax increases to close the fiscal gap, consumer demand and business investment are likely to weaken further in the near term. Conversely, if the Budget delivers credible investment-led growth alongside fiscal discipline, the confidence effects could partially offset the drag from higher borrowing costs. The Bank of England faces a delicate balancing act: cutting rates too quickly risks entrenching services inflation, while holding too long deepens the slowdown in mortgage-dependent sectors. External risks remain tilted to the downside, with escalating trade tensions between the United States and its major partners threatening to disrupt global supply chains and dampen export demand precisely when the domestic economy can least afford additional headwinds.