UK Growth Stalls: Services Sector Struggles as Economy Slows
UK Growth Stalls: Services Sector Struggles as Economy Slows
The UK’s economic growth slowed dramatically in the third quarter of 2024, with GDP expanding by just 0.1%. This fell short of economists' forecasts of 0.2% and marked a stark deceleration from the 0.5% growth recorded in the second quarter. The slowdown, revealed in the latest figures from the Office for National Statistics (ONS), has raised concerns about the country’s ability to sustain recovery amidst fiscal and monetary pressures.
Services Sector Falters Amid Fiscal Uncertainty
The ONS report attributed much of the sluggish growth to underperformance in the UK’s dominant services sector, which contributes about 80% of the economy. Growth in the sector was an anemic 0.1% for the quarter.
ONS Director of Economic Statistics Liz McKeown highlighted the uneven performance:
“The economy grew a little in the latest quarter overall as the recent slowdown in growth continued. Retail and new construction work both performed well, partially offset by falls in telecommunications and wholesale. Generally, growth was subdued across most industries in the latest quarter.”
In September, the economy contracted slightly, with the services sector stagnating. McKeown noted:
“Services showed no growth with a notable increase in car sales offset by a slow month for IT companies. Production fell overall, driven by manufacturing, though there was an increase in oil and gas extraction.”
Labour’s Economic Plans Under Scrutiny
The third quarter figures underscore the challenges facing the Labour government, which took office earlier this year and has made economic growth a top priority. Labour’s recent budget focused on stabilizing public finances through higher taxes and borrowing, but businesses argue these measures could have counterproductive effects.
Among the more contentious policies was an increase in employers’ national insurance contributions, which critics warn could stifle job creation and deter investment. Meanwhile, high borrowing costs continue to weigh heavily on businesses and households, despite two interest rate cuts by the Bank of England this year, bringing the base rate to 4.75%.
Construction Shines, but Manufacturing Struggles
While the services sector faltered, construction emerged as a bright spot, growing by 0.8% in the quarter. In contrast, production output dropped by 0.2%, with manufacturing being a significant drag. The ONS noted, however, a positive contribution from oil and gas extraction, which partially offset manufacturing declines.
The economic outlook remains uncertain as Labour attempts to balance growth ambitions with fiscal prudence. Whether the government’s policies can revive private-sector confidence and boost activity across industries remains to be seen.
