The UK economy’s performance during the July-to-September quarter was a rather pitiful 0.1% growth, well below economists’ predictions. This modest increase comes after a very strong H1 of this year. All along in that period, the economy went much better than expected. After a missed contraction in September, questions persist about the durability of this growth path.
The UK is on track to be the second fastest-growing economy in the G7 this year. This is possible even amid the recent slowdown. The indicators are pointing to a very fragile growth. Consumers in the UK are in very different mode. They aren’t spending it down nearly as fast as their counterparts in the United States. This unwillingness to spend will most likely limit any additional economic force.
The Budget will be the most important of the fiscal decade to steer the country through this challenging economic storm. It needs to create predictability for consumers and businesses and confidence in the face of continued unpredictability about the economic policy direction. Along with that is a major fiscal hole that must be addressed to ensure the long-term mission.
Yet the UK economy has stepped back into a path of weak growth that long became, despite 2016’s buoyant forecasts, the new normal. Years of cascading crises, from unexpected political upheavals to global economic shocks, have taken permanent scars on the economy. Yet the declining cost of government borrowing makes this risk even more salient. As of now, important two- and five-year rates are lower than the Labour government inherited upon taking office.
Analysts are taking note that the UK economy proved surprisingly resilient through the first half of this year. It continues to have a hard time breaking out of its pattern of gradual growth. Several factors are behind this troubling stagnation including continued market uncertainty and weak consumer demand.