UK GDP: Grim figures ‘pave way’ for interest rate cut just days before Christmas

The latest official figures show that gross domestic product (GDP) - a measure of total economic output - rose by just 0.1 per cent in the third quarter to the end of September, in a fresh blow to the Chancellor ahead of the autumn Budget. GDP fell by 0.1 per cent in the month of September, in part due to the massive cyber attack hitting Jaguar Land Rover - the UK’s biggest car-maker.

The data will be the last set of GDP numbers ahead of the Budget on November 26.

Economists had been predicting growth of 0.2 per cent for the third quarter, down from the 0.3 per cent increase recorded between April and June, with expectations that September would show a flat reading.

James Bentley, director at Financial Markets Online, said: “Suddenly the chances of an interest rate cut before Christmas are on a par with the likelihood of mince pies and syrupy TV ads.

“Last week, the Bank of England said that, in its view, inflation has peaked. Despite narrowly voting to not cut the base rate immediately, the Bank’s monetary policy committee [MPC] left the door wide open to a December cut.

“[These] GDP numbers give the Bank every reason to walk through that door next month. With inflationary fears dissipating, its priority will be kickstarting the UK’s moribund growth - and a December rate cut now looks all but assured.”

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Suren Thiru, economics director at accountancy body ICAEW, added: “These disappointing figures pave the way for a December interest rate cut by fuelling fears over economic conditions sufficiently enough to push a majority of rate-setters to authorise another policy loosening.”

The last meeting of the MPC is due to take place on December 18.

Liz McKeown, director of economic statistics at the Office for National Statistics (ONS), said: “Growth slowed further in the third quarter of the year with both services and construction weaker than in the previous period. Across the quarter as a whole manufacturing drove the weakness in production.

“There was a particularly marked fall in car production in September, reflecting the impact of a cyber incident, as well as a decline in the often-erratic pharmaceutical industry.”

UK production output dropped 2 per cent in September, with car and trailer manufacturing plunging by 28.6 per cent - its sharpest fall since the height of the pandemic in April 2020. The ONS said the drop in car manufacturing, which was linked to the hack as well as a broader decline in commercial vehicle volumes, knocked 0.17 percentage points from GDP for the month.

Meanwhile, growth in the services sector slowed to 0.2 per cent for the third quarter, from 0.4 per cent in the previous period, suggesting that consumers may be further reining in their spending.

Chancellor Rachel Reeves had been hopeful that stronger economic growth could help increase tax revenues and support government spending plans.