UK economy has failed to grow since election in fresh blow for Labour

Figures from the ONS show no growth between July and September

UK gross domestic product showed no growth between July and September (Victoria Jones/PA) (PA Wire)

The UK economy was stagnant in the first three months of the new Labour government, statistics from the ONS have revealed, recording no growth in the third quarter.

The Office for National Statistics (ONS) had previously estimated the figure to stand at 0.1 per cent, but has revised this down to 0.0. This is weaker than what was expected in the final quarter of the Conservatives’ tenure, data shows.

According to data also published in the ONS’s latest GDP quarterly national accounts report, early estimates of disposable household income show no growth in Q3 – the three months after Labour came into power. The figures come after 1.4 per cent of growth in the previous quarter.

Real GDP per head also fell by 0.2 per cent in Q3 – the three months after Labour came into power. This is 0.2 per cent lower than the same time last year.

The result will come as a fresh blow for Sir Keir Starmer’s government, which has put growth at the heart of its mission for government.

Raising living standards has been a cornerstone promise for the party, with the prime minister earlier in the month promising to that government spending plans will ensure “working people have more money in their pocket” and that “growth must be felt by everyone, everywhere.”

Paul Johnson, Director of the Institute for Fiscal Studies (IFS) warned that the chancellor may need to “come back for yet more money” next Autumn, after unveiling historic tax rises at the last budget, and will be stuck in a difficult place for public services if the economy doesn’t pick up.

But Russ Mould - investment director at investment firm AJ Bell - called for period of stability when it comes to taxes and regulation in the economy in order to boost growth, as well as ensuring the UK fosters close relations with the incoming Trump administration in the US 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 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.”

Mr Mould added: “In terms of trade – we’ve clearly got to try and keep president elect Trump on side, which will be falling onto Peter Mandelson’s lap.”

Pointing to the figures, ONS director of economic statistics Liz McKeown explained: “The economy was weaker in the 2nd and 3rd quarters of this year than our initial estimates suggested with bars and restaurants, legal firms and advertising, in particular, performing less well.

“The household saving ratio fell a little in the latest period, though remains relatively high by historic standards. Meanwhile real household disposable income per head showed no growth.”

Chancellor Rachel Reeves said the challenge facing the government “after 15 years of neglect is huge”, but said this 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.

But Mel Stride MP, shadow chancellor of the Exchequer, 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.

Meanwhile, a Reform UK Spokesman said: “Before the election, Starmer and Reeves pledged the highest economic growth in the G7. Instead they are just continuing the Tory legacy of a bloated state, high taxes and managed decline.

“Britain needs major economic reform and Reform UK are the only party ready to deliver it.”

The poor economic figures come just hours after a forecast from the Confederation of British Industry (CBI) warned that the private sector expects “steep decline in activity” into 2025. In the findings, released the day before the GDP announcement, the influential business organisation said expectations amongst business leaders are at a two year low.

Alpesh Paleja, CBI Interim Deputy Chief Economist, 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 clearly have inherited a “rotten hand” when it comes to the state of the economy, he expressed doubt as to whether they have 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.

“Their desire to pull the growth the lever to try and get the debt to GDP down makes sense, and 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.”