Reeves: I am not satisfied with these numbers
Chancellor Rachel Reeves says she is “not satisfied” with today’s GDP figures showing the economy slowed over the summer with just 0.1% growth (and a shock contraction in September).
Reeves says:
“Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.
“At my Budget, I took the difficult choices to fix the foundations and stabilise our public finances.
“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal.”
Key events
Labour MP Liam Byrne, who chairs parliament’s Business and Trade committee, argues that today’s growth figures are due to “really long-term problems in the British economy”.
He told Radio 4’s Today programme:
“We need to raise the investment rate in the British economy. We have not been investing enough in infrastructure and skills and innovation for a long period of time.
“I’m afraid that catches up with you, especially if you’re now in this new world where so much of our trade is wrapped in red tape.
“We’re in quite a difficult position at the moment and we’re going to need some pretty bold and pretty quick measures from our government.”
We should not dismiss the chance of an interest rate cut in December, Professor Costas Milas of the University of Liverpool’s Management School tells us:
Today’s GDP reading is a worry, and more so the month-on-month drop by 0.1%. The MPC of the BoE will decide again on interest rates on Thursday 19 December.
By that time, the MPC will surely be aware of October’s GDP reading. If GDP in October drops again (following September’s drop), there is a good chance the MPC will cut rates. Think about this possible decision as “insurance policy” against the rising risk of recession also related to Donald Trump’s trade wars…
Stride claims Labour talked economy down
The shadow chancellor, Mel Stride, has claimed that the slowdown in growth this summer was due to Labour “talking the economy down”.
The shadow chancellor told Times Radio this morning that the government was “reaping, to a degree, what they’ve done”, saying:
“I’m afraid they’re reaping to a degree what they’ve done in terms of talking the economy down. And of course now what they’ve done is follow it up with a budget that has indeed ramped up taxes, particularly taxes that are going to bear down on growth.”
Stride claimed ministers had a ‘mission’ to talk down the economy ahead of the budget, saying:
“Across that quarter, across the summer, what the Labour Government did in order to justify what they planned to do all along, which was to substantially hike taxes… it was their mission to talk down the UK economy.”
As we’ve been covering this morning, several economists have blamed budget uncertainty for the slowdown.
Looking back over summer…. in late July, Rachel Reeves announced a £22bn ‘black hole’ had been discovered in public spending this year, which raised fears of tax rises in the budget, and in August Keir Starmer warned that ‘painful’ decisions were needed.
That was followed by a drop in UK consumer confidence.
Today’s GDP report shows that consumer-facing services grew by 0.5% in Q3, while business-facing services showed no growth in the quarter.
Today’s UK GDP figures provide “a bit of a cold shower” after the post-budget excitement about the prospect of faster UK growth, says James Smith, Developed Markets Economist at ING.
But, Smith argues we shouldn’t “overthink” the numbers. He expects the UK economy wil keep growing over the winter:
We think we’re likely to see quarterly [growth] readings in the 0.2-0.3% range over the winter months. Real wage growth is still decent; wage growth is likely to stay above 4.5% for now, which is materially faster than inflation, even if that is set to pick up to 2.7% by year-end (from 1.7% now). Meanwhile, we estimate that roughly 80% of the mortgage squeeze has fed through to households. Our growth forecasts are a little lower than the Bank of England’s in the near-term though partly because of our weaker global outlook.
The latest budget will boost growth through next year, though we are still sceptical that spending will rise quite as quickly as the government’s plans suggest. Remember the OBR roughly estimates a £60bn increase in spending next year, relative to March budget plans, around a third of which is investment. We’re not convinced all of that extra capital spending can be deployed speedily.
Landsec’s London offices almost full as WFH push reverses
Mark Sweney
One of Britain’s biggest property developers has reinforced the growing shift to a return to office working saying that occupancy in its central London offices has grown to an all-time high, and as the value of its portfolio has returned to growth.
The improvement in the market saw LandSec, which owns offices and retail locations such as Bluewater and Trinity Leeds, bounce back to a £243m pre-tax profit in the six months to the end of September.
The company, which has reduced its assets in the City of London to 24% of its office portfolio post-Covid, had reported a loss of £193m in the same period last year.
On Friday, LandSec said that its West End offices are “practically full” – with occupancy across its central London portfolio growing to a high of 97.9% – with four-fifths of customer striking lettings deals over the last year either growing space or maintaining existing size.
LandSec says:
“Across our Central London portfolio, office utilisation continues to grow. Rents for highly sustainable, best-in-class offices continue to grow.”
The company said that investment activity in London has picked up and as a result the value of its property portfolio has returned to growth.
“Following two years of softening, property yields stabilised over the last six months,” the company said.
LandSec’s overall central London office portfolio grew by 0.8% in value year-on-year to £6.4bn, and within this its assets in the City of London grew by 1.9% to £1.25bn.
However, the company said that the strongest signs of recovery are being seen in its retail property operation, driven by demand from big brands such as Primark and JD Sports.
LandSec explains:
“Brands continue to focus on fewer, but bigger and better stores in key locations. This means leading brands continue to take more space with us. As supply of both is constrained, rents continue to increase.”
The value of the company’s major shopping centre and retail outlet locations grew by 2.8% year-on-year to just over £2bn at the end of September.
“Given the attractive returns in major retail we will focus our investment for the remainder of this year on this, rather than making any new office commitments,” the company said.
Shares in Landsec have jumped 1.6% at the start of trading in London, the top riser on the FTSE 100 index.
December interest rate cut unlikely despite summer slowdown
High interest rates also weighed on the UK economy over the summer.
The Bank of England kept interest rates at a 16-year high of 5.25% until August, when it cut them to 5% (followed by a cut to 4.75% last week).
Suren Thiru, ICAEW economics director, suspects the Bank will resist cutting interest rates again next month, even though growth was so weak in July-September.
Thiru says:
“These figures suggest that the economy went off the boil even before the budget, as weaker business and consumer confidence helped weaken output across the third quarter, particularly in September.
“Following a ‘gangbusters’ first half of the year, the third quarter outturn paints a more realistic picture of the UK’s underlying growth trajectory given longstanding challenges over poor productivity and persistent supply side constraints.
“Economic growth in the final quarter of this year is likely to be similarly modest with looming tax rises and growing global uncertainty likely to spark a renewed restraint to spend and invest, despite lower interest rates.
“In spite of these downbeat figures, a December policy loosening looks improbable as rate setters will likely be concerned enough over inflation risks from the budget and growing global headwinds to resist signing off back-to-back interest rate cuts.”
The City agrees. According to the money markets this morning, there’s only a 17.5% chance of a UK interest rate cut in December, and an 82.5% chance the BoE leaves rates on hold.
Resolution: UK falls off the top of the G7 growth leaderboard
The Resolution Foundation have calculated that the UK has fallen behind the US for growth so far this year.
They explain that the UK had the fastest growing economy in the G7 in the first half of this year, after growing by 1.2% from January to June.
But Britain’s GDP rebound has now “run out of steam”, with today’s data showing GDP slowing to 0.1% in the third quarter of 2024 (one of the weakest rates across the G7, as explained here).
Resolution say this slowdown puts UK growth over the first three quarters of the year at 1.3%, behind the US (1.9%) but ahead of France and Italy (0.8% and 0.4%), with Canada set to stay just behind the UK based on current forecasts.
Simon Pittaway, senior economist at the Resolution Foundation, says:
“After bouncing back from recession earlier this year, Britain’s recovery is already running out of steam. The UK has fallen below the US at the top of the G7 GDP growth leaderboard, with growth slowing, wage rises shrinking and employment starting to fall.
“The UK has been a GDP rollercoaster over the past 12 months, but its medium-term performance has been staid and stagnant. Over the past five years, the economy has shrunk by 0.7 per cent once you account for population growth.
“This all serves to highlight that the Government’s mission to renew strong economic growth is both extremely hard, and absolutely necessary.”
Economist experts are in broad agreement that budget uncertainty hurt growth over the summer.
Hailey Low, associate economist at the National Institute of Economic and Social Research (NIESR), says:
“Today’s Q3 GDP figures, though less robust than in the first half of the year, reflect the impact of pre-budget uncertainty.
More notably, it is disappointing that the Chancellor did not fully leverage her landmark budget last month to introduce measures addressing the UK’s low productivity growth, tackling growth inertia, and stimulating long-term economic growth.”
Lindsay James, investment strategist at Quilter Investors, blamed ‘gloomy messaging’ from the government in the run-up to the budget:
“With the budget now firmly in the rearview mirror and the Chancellor reinvigorating her message of growth with the Mansion House speech, today’s quarterly GDP figures highlight the malaise the UK still finds itself in. Despite good momentum early this year, growth has stumbled once again, growing just 0.1% over the last three months, with September actually seeing a contraction.
Much of this will have been as a result of the gloomy messaging that was persistent in the run up to the budget, causing consumers and businesses to pause spending and await what pain was to come.
Here’s Jeremy Batstone-Carr, European strategist at Raymond James Investment Services:
“This morning’s data confirms that the pace of UK economic expansion slowed in the run-up to Rachel Reeves’ inaugural Budget. As consumers and businesses waited to hear the Government’s fiscal policy plans, economic activity decelerated, although not to a halt. Despite weakness in government spending and trade, buoyancy in consumer spending was sufficient to grow the economy by 0.2% in the third quarter of this year.
Reeves: I am not satisfied with these numbers
Chancellor Rachel Reeves says she is “not satisfied” with today’s GDP figures showing the economy slowed over the summer with just 0.1% growth (and a shock contraction in September).
Reeves says:
“Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers.
“At my Budget, I took the difficult choices to fix the foundations and stabilise our public finances.
“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal.”
UK towards bottom of G7 growth table for Q3
Today’s GDP report shows that the UK is sitting towards the bottom of the G7 for growth over the summer.
Here’s how the lacklustre growth of just 0.1% last quarter compares with other major economies:
Labour have pledged to deliver the “highest sustained growth in the G7”; today’s data shows plenty of progress is needed…..
