The United Kingdom’s economy shrank in September, down 0.1%. All of this data is from the Office for National Statistics (ONS). This drop represents a sharp reversal from just three months ago, when the economy grew at a 0.3% pace. Analysts had predicted just a 0.2% increase for the third quarter, further darkening an improving economic picture.
One of the biggest factors in the drop was a steep decrease in vehicle manufacturing. This was a huge dip due to last September’s cyber attack, which affected operations at Jaguar Land Rover (JLR). The attack particularly affected the UK’s industrial base by shutting down manufacturing production lines, resulting in an economic shock that echoed through the entity of UK industry.
Suren Thiru is the director of economic policy at the Institute of Chartered Accountants in England and Wales. Flaherty’s worries about what these numbers meant were well-placed. He indicated that the current economic performance may influence monetary policy decisions, stating that the data could “push a majority of rate-setters to authorise another policy loosening.”
Even with the contraction, there were bright spots with growth occurring in a number of sectors across the economy. It was services leading that growth in the most recent quarter. Corporate rentals, live event and experiential activations, retail business were thriving. This increase is tempered by declines in research and development, and in personal care services including hair and beauty salons.
As Ruth Gregory, deputy chief UK economist at Capital Economics, emphasized, that’s the wrong question to ask. She observed that the economy remains “just short of getting into good momentum,” notwithstanding the adverse impact of the JLR cyber-attack. This is a relevant single example but reflects deeper macroeconomic malaise across the UK economy outside of the individual case.
The first quarter of the year saw a robust rebound of 0.7%. This is in dramatic opposition to the recent bust. With the economic outlook growing more glum by the day, there is an ever louder drumbeat for more aggressive stimulus from elected leaders.
Mel Stride, the incoming Shadow Chancellor, laid into the lack of leadership from the current government. He claimed that Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are “in office but not in power.” He further claimed that Sir Keir Starmer had effectively “stripped the Chancellor of responsibility for the Budget,” suggesting a lack of clear direction in fiscal policy.
Rachel Reeves, Labour’s Shadow Chancellor, weighed in on the economic situation, stating that “there’s more to do to build an economy that works for working people.” She highlighted her upcoming budget plans, asserting that she will “take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt and cut the cost of living.”
And looking forward, analysts are still wary of any bounce back with questions still outstanding to what’s happening in industrial production and the broader economic boost. The coming months will be key. Shining a spotlight on whether the UK is recovering from last quarter’s contraction, or whether further policy changes are required to promote a turnaround will be revealed.