Today’s disappointing growth figures reflect that the UK has returned to the slower lanes of growth, having outperformed earlier in the year.
The 0.1% growth seen in the July-to-September quarter was below forecasts, and the economy shrank in the month of September.
A breakdown in car production following the cyber-attack on Jaguar Land Rover does explain September’s contraction, and why the overall growth figures were worse than expected.
The ONS told me that if vehicle production had been flat rather than the worst monthly fall on record outside of the pandemic, GDP in September would have gone up.
That is not the full story, though. Momentum in the economy has clearly flagged.
In particular, slowdowns in consumer-facing services and business investment are a key concern.
Higher costs of employment and the constantly rolling uncertainty are not helping.
Consumers remain cautious, with high savings rates, and businesses have not yet turned on the investment taps.
A key objective for the Budget is to end the constant doom loop of speculation about tax changes. There will be a bigger buffer against fiscal shocks, and potential changes to how often the chancellor’s borrowing rules are assessed.
Certainty has a price, however, in terms of tax rises. The Budget will try to target the rise in tax away from worker pay packets and investors, but the sums involved make this a tricky task.
The silver lining for some to the cloudy figures is that a further Bank of England rate cut next month now seems very likely, with perhaps more to come next year.
It is reflected in the declining cost of government borrowing on markets, with key two- and five-year rates now below what Labour inherited when entering office. The cost of fixed mortgage rates is also starting to come down.
The chancellor will see this as vindication for a tough stance on her “non-negotiable” rules, and will use these figures to demand discipline over tricky Budget decisions from her backbenches. The property market has also, however, been impacted by speculation about tax changes.
The feel-good factor is missing. UK consumers, unlike US consumers, have kept savings levels high, and are not spending as much. Years of rolling crises, followed by ongoing uncertainty about policy, has left scars.
The UK economy has not managed to break the trend of slow growth, despite a strong-ish first half of the year. There was no growth when adjusting for the size of the population.
While the economy has defied the recessionary vibes, and could still end up the second fastest G7 economy this year, the Budget somehow has to provide certainty, try to boost consumer and business confidence, and at the same time fill a large fiscal gap.
It’s quite the ask, and the latest growth figures have raised the stakes for the Budget even higher.
