The UK economy was already reeling from stagnation. It hasn’t been able to shatter this insidious trend for more than a decade. The first six months have been on fire. Yet the latest figures show signs of a worrying slowdown in economic activity and consumer demand, threatening a tough new reality for the next Budget.
Overall, in the July-to-September quarter, the UK economy only increased by 0.1% – significantly below expectations. This truly disappointing figure follows on the heels of a contraction in September, showing a very worrisome turn in momentum. With things as they are, the UK economy is on track to be the second fastest growing economy in the G7 before long. The future still appears rather dark.
We’re seeing how much consumer behavior can throw a wrench in this economic reality. While UK consumers have been able to cushion the blow with their savings, consumer confidence has dropped significantly, leading to an overall decline in spending. This laidback attitude toward spending is probably a product of long crises. Long-term policy ambiguity has hurt consumer confidence. Effects may take years to fully heal.
The UK government is in a huge fiscal hole that it needs to at least partially pick their way out of in the Autumn Statement / Budget. At the same time, government borrowing costs have fallen dramatically in the markets. Consequently, the most important two- and five-year UK government borrowing rates are now lower than they were when Labour came to power. That creates an opportunity for the next government to lead in developing and executing policies that help restore confidence among consumers and business.
Critics have been urging that the upcoming Budget must deliver clarity for the consumers as well as the businesses. It needs to confront the reality of the slow growth pessimists. Simultaneously, it needs to foster a climate for more robust making, spending and investment. The wounds from decades of economic challenges require smart planning to earn trust and spark growth again.
As the UK economy returns to what some analysts consider the “slower lanes of growth,” policymakers are urged to take decisive action. Spending isn’t happening despite consumers being flush with savings. This growing trend underscores the need for smart measures to be introduced in next week’s Budget.