UK Economy Stalls: Labour's Budget and Global Factors Weigh Heavy

The British economy has hit a significant roadblock, with GDP failing to grow at all in the third quarter of 2024. This stagnation, coupled with a downward revision in GDP growth estimates, has dealt another blow to the new Labour government. The Office for National Statistics (ONS) reported that the economy unexpectedly shrank for the second successive month in October, with the latest 0.1% contraction meaning that since Labour came to power in July, the economy has either flatlined or contracted.



The Confederation of British Industry (CBI) survey, based on responses from 899 companies, found expectations for growth at their weakest since November 2022. The survey revealed a predicted fall in activity across various sectors, including services, distribution sales, and manufacturing output. The government's Budget, which included a hike in employers' national insurance, has been cited as a contributing factor to the gloomy outlook, exacerbating an already tepid demand environment.

Labour's Budget, particularly the increase in employer National Insurance contributions, has negatively impacted business sentiment and economic growth. According to the CBI, firms expect to reduce both output and hiring, blaming the Budget in part. Alpesh Paleja, the CBI's interim deputy chief economist, stated that businesses are facing an already tepid demand environment exacerbated by the Budget's measures. The CBI's growth indicator survey found expectations for growth at their weakest since November 2022, with a 24 percentage point gap between negative and positive responses on expected output.

The UK's economic stagnation in the third quarter can be attributed to both domestic and external factors. While the Labour government's Budget and tax increases have been criticized for dampening business confidence, global economic conditions and geopolitical tensions have also played a significant role. The Bank of England's forecast of zero growth in the fourth quarter, amidst ongoing inflation risks, highlights the challenging environment. Additionally, the specter of a potential trade war, as mentioned by Deutsche Bank's chief UK economist Sanjay Raja, adds to business uncertainty going into 2025.

The new Labour government must navigate these global headwinds while addressing domestic economic challenges to stimulate growth and restore investor confidence. The government's Budget, which included a hike in employers' national insurance, has been criticized for exacerbating an already tepid demand environment. The CBI survey found that businesses expected to reduce both output and hiring, blaming the Budget in part.

In conclusion, the UK's economic flatlining in the third quarter is a significant challenge for the new Labour government. The government must address both domestic and external factors to stimulate growth and restore investor confidence. The Budget's impact on business sentiment and the global economic environment are crucial aspects to consider in formulating policies to revive the economy.