UK economy barely grew in third quarter

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The UK economy barely expanded in the third quarter as the dominant services sector lost momentum, underlining the challenge facing the Labour government that has put growth at the centre of its agenda.

The economy grew 0.1 per cent in the quarter, the Office for National Statistics said on Friday, compared with an expansion of 0.5 per cent in the second quarter. The figure was below economists’ expectations of 0.2 per cent.

The services sector, which accounts for about 80 per cent of the economy, expanded 0.1 per cent, overshadowing a 0.8 per cent expansion in the construction sector.

In a sign of how momentum faded over the three-month period, the economy contracted 0.1 per cent in September, below economists’ expectations.

In her Budget late last month, chancellor Rachel Reeves increased taxes and borrowing in what Labour said was a bid to repair public finances and improve public services. But many businesses say the increase in employers’ national insurance will hit job creation and could lead companies to scale back investment plans.

Following the release of the data on Friday, Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.”

Sterling was little changed at $1.2680 after the publication of the figures.

Earlier this month, the Bank of England cut interest to 4.75 per cent but indicated that a further reduction in borrowing costs was unlikely before early next year, as it weighs the outlook for inflation.

The BoE expects growth to remain lacklustre in the final quarter of the year and has forecast a 0.3 per cent expansion.

The UK’s quarter-on-quarter GDP figure for the three months to September compares with a 0.7 per cent expansion in the US and 0.4 per cent in the Eurozone.