The United Kingdom’s GDP growth has decelerated, suggesting potential interest rate cuts by the Bank of England.
- In Q3, GDP growth was only 0.1%, a drop from the 0.5% growth recorded in Q2.
- September saw a slight GDP contraction by 0.1%, mainly due to reduced manufacturing and communication output.
- Business reactions to recent tax raises may exacerbate the slowdown, pressing policymakers for action.
- The Bank of England holds the spotlight for possible monetary accommodations in the near future.
The United Kingdom’s economic growth has faced a marked deceleration as the latest data shows GDP expanded by a mere 0.1% in the third quarter of 2024, a significant drop from the 0.5% increase witnessed in the second quarter. Such figures have led analysts to speculate on imminent monetary policy adjustments, particularly potential interest rate cuts by the Bank of England.
Breaking this down further, the month of September experienced a GDP drop of 0.1%. This downturn is largely attributable to diminished outputs in the manufacturing sector, alongside reduced activity in information and communication services. Despite this downturn, the construction sector reported a minor upsurge of 0.1%, and the services sector showed no significant movement.
Looking at the broader picture, the GDP still maintains a growth of 1.0% when compared to the same quarter last year, and the data from September also reflects a similar 1.0% increase from the previous year. However, the year-on-year progress is being overshadowed by the recent quarterly stagnation, which has prompted concerns regarding the UK government’s economic strategies following recent tax hikes.
Notably, Isaac Stell, an investment manager at Wealth Club, has highlighted the need for the Bank of England to intervene. Stell suggests that “it may be down to the BoE to save the day by cutting rates at their December meeting, helping to ease the burden on businesses and consumers alike.” His insights indicate a growing expectation for the BoE to provide some relief amidst the festive season’s economic burdens.
Adding to the discourse, Lindsay James, an investment strategist at Quilter Investors, notes that the latest GDP data doesn’t align well with the Chancellor’s positive growth message in the Mansion House speech. Instead, the figures highlight persistent economic challenges that are causing hesitancy among consumers and businesses to engage in spending.
Furthermore, Luke Bartholomew, deputy chief economist at abrdn, reflects on the economy’s natural slowdown from earlier accelerated levels but points out the slowdown’s unexpected degree. He attributes this partly to uncertainties surrounding potential tax changes prior to the Budget. Bartholomew suggests this might also represent typical monthly fluctuations rather than deep-seated economic issues.
The UK economic landscape remains closely monitored, with potential interest rate cuts pending further developments.
