New data reveals that the UK economy experienced zero growth between July and September, with a series of interest rate hikes being cited as the primary factor. Despite this, the Chancellor of the Exchequer acknowledged that the economy had outperformed expectations throughout the year.
Economic analysts anticipate a prolonged period of stagnation, while the recent Bank of England forecast indicated that the UK might not see any growth until 2025, although a recession is expected to be avoided.
The Bank had implemented 14 consecutive interest rate increases until September to combat surging inflation. Nevertheless, while higher rates can curb inflation, they also hinder economic growth by increasing borrowing costs for consumers and businesses.
Interest rates currently stand at a 15-year high of 5.25% and are projected to remain elevated. Bank Governor Andrew Bailey emphasized that it is premature to consider rate cuts.
Capital Economics’ Chief UK Economist, Paul Dales, suggested that the data reflects the growing impact of higher interest rates, but he does not anticipate rate reductions until late next year.
The Office for National Statistics (ONS) reported subdued growth across all sectors of the economy, with the services sector experiencing a slight decline, while manufacturing and the construction sector registered modest growth.
Chancellor Jeremy Hunt acknowledged the influence of interest rates on economic performance and expressed optimism about the UK’s economic resilience. He indicated a preference for reducing business taxes in the upcoming Autumn Statement, emphasizing the importance of fostering economic growth.
In contrast, Labour’s shadow chancellor, Rachel Reeves, criticized the economic data as evidence of a malfunctioning economy, while Liberal Democrat Treasury spokesperson Sarah Olney accused the Conservatives of steering the economy toward a path of no growth.