The UK economy has moved into a new phase of low growth. This shift presents significant challenges for policymakers as they prepare for the new Budget Season. In the last quarter from July to September, the economy grew by a miniscule 0.1%. That performance was well below projections and highlighted the persistent economic headwinds that we continue to experience. Significantly, the economy contracted in September, adding to the uncertainty for the rest of the year.
Even with these obstacles, the UK is on track to be the second-fastest growing economy this year among G7 nations. Yet, the nation has had a hard time escaping its persistently low growth trajectory. This trend has persisted for most of 2023. While the first half of the year showed unusually good economic performance, the latest numbers point to a concerning change.
Consumer behavior has played just as much a role in creating the current climate. UK households have managed to save at record levels, but spending has collapsed even more than expected. Finding like this increased caution in intent to spend is a reflection of deeper worries about overall economic stability and future financial prospects.
On a slightly more optimistic note, the expense of the states and municipalities’ borrowing has recently experienced a little relief courtesy of dropping market rates. Key two-year and five-year borrowing rates are now significantly lower than those inherited by the Labour government when it came to power. This welcome status quo should give fiscal policymakers some leeway in the next Budget.
Against a backdrop of discord, economic and political turmoil, and heightened expectations of a global recession, the UK economy has, so far, bucked the trend. With officials gearing up for the Budget, the need to renew their focus on those fiscal responsibilities is acute. Economists emphasize that the Budget must offer certainty to restore consumer and business confidence while bridging a significant fiscal gap.