LONDON – The British economy flatlined in the third quarter of the year, official figures showed Friday ahead of a budget statement from the government later this month that it hopes will bolster growth in the run-up to national elections.
The Office for National Statistics said growth in the July-to-September period was zero compared to the previous three-months. All sectors, such as manufacturing and construction, broadly showed the same subdued picture.
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Despite the uninspiring headline figure, the quarterly outcome was slightly ahead of analysts' expectations for a modest decline in output.
The British economy, like many others particularly in the world, is facing headwinds in the form of higher interest rates, which are aimed at taming inflation.
Last week, the Bank of England kept its main interest rate unchanged at the 15-year high of 5.25% and indicated that borrowing costs will likely remain at these elevated levels for a while to get inflation back to its target of 2% from the current 6.7%
The Bank of England, like other central banks, raised interest rates aggressively from near zero as it sought to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then Russia’s full-scale invasion of Ukraine, which pushed up food and energy costs.
One way higher interest rates work in getting inflation down is by making it more expensive for consumers and businesses to borrow, thereby reining in spending.
“With higher interest rates feeding through to mortgage holders and with challenges in the labour market, activity is likely to flatline through to the middle of next year,” said Ian Stewart, chief economist at Deloitte.
Though a widely predicted recession has not materialized over the past year, the economic backdrop is hardly ideal for the governing Conservative Party given that a general election must take place by January 2025. The main opposition Labour Party is way ahead in opinion polls at present.
Treasury chief Jeremy Hunt said a budget statement he will deliver on Nov. 22 will focus on how to “get the economy growing healthily again by unlocking investment.” Labour economy spokesperson Rachel Reeves said the figures provide “further evidence that the economy is not working under the Conservatives.”