UK Economy Shows Modest Growth Amid Challenges Ahead of Budget
The UK economy experienced modest growth of 0.1% in the July to September quarter but contracted in September. The decline was partly due to a disruption in car production caused by a cyber-attack on Jaguar Land Rover. The Office for National Statistics estimates that without this production issue, September GDP would have increased, indicating underlying economic momentum is weaker than it appears.
Several factors are weighing on growth, including slowdowns in consumer-facing services and business investment, higher employment costs, and ongoing uncertainty. Households remain cautious, maintaining high savings levels.
The upcoming Budget aims to end regular speculation about tax changes, provide a stronger buffer against fiscal shocks, and review the frequency of how the chancellor's borrowing rules are assessed. Although tax rises are anticipated, the Budget intends to protect worker pay packets and investors from excessive burdens. Decisions regarding revenue are complex due to the large sums involved.
Market expectations include a further Bank of England interest rate cut next month, with possibly more cuts next year. Government borrowing costs and fixed mortgage rates have started to ease.
Despite these challenges, the UK economy has not yet broken its slow-growth trend but could still rank as the second-fastest among G7 economies this year. The Budget faces high stakes to provide certainty, boost confidence, and close a significant fiscal gap.
