UK economy barely grows in the third quarter, missing forecasts ahead of crucial budget

The U.K. economy grew a meager 0.1% in the third quarter, according to preliminary figures from the Office for National Statistics, marking one of the last major pieces of economic data to be released ahead of the Autumn Budget.

Economists polled by Reuters expected the economy to have grown 0.2% over the July-September period, following an expansion of 0.3% in the second quarter.

Month-on-month, the economy shrank by 0.1% in September, following no growth in August (which was revised down from a 0.1% expansion in the ONS’ previous data).

“Growth slowed further in the third quarter of the year with both services and construction weaker than in the previous period. There was also a further contraction in production,” Liz McKeown, director of Economic Statistics at the ONS, said on Thursday.

Across the quarter as a whole manufacturing drove the weakness in production, the ONS said, highlighting the cyber attack on Jaguar Land Rover, which halted production for five weeks, as a major source of economic disruption.

“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,” McKeown said in comments posted on social media platform X.

The data comes ahead of the British government’s highly anticipated Autumn Budget on Nov. 26, at which Finance Minister Rachel Reeves is expected to announce fresh tax hikes in order to fill a fiscal black hole.

There are concerns that tax hikes could put a dampener on consumer spending and economic activity, but the economy could get a pre-Christmas boost if the Bank of England cuts interest rates at its last meeting of the year on Dec. 18.

Responding to the latest growth data, Reeves said: “At my Budget later this month, I will take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt and cut the cost of living.”

“All eyes will now be on the upcoming Budget with another weak GDP reading only adding to debates around which levers the Chancellor can pull to stimulate growth,” Scott Gardner, investment strategist at JPMorgan Personal Investing, said in emailed analysis.

“In our view, boosting housing market activity is key to unlocking decent, sustained growth … That said, with tax rises all but confirmed, consumption and, in turn, services spending could face more headwinds from the second quarter of next year when tax and spend measures could come into place. It remains all to play for,” he added.

Amanda Blanc, chief executive of Aviva, told CNBC’s “Squawk Box Europe” on Thursday that the budget “can’t come soon enough,” with businesses and consumers seemingly nervous about what’s in store. “You can deal with certainty, what you can’t deal with is speculation,” she said.

At its most recent meeting last week, the Bank of England held off trimming rates with BOE Governor Andrew Bailey telling CNBC that he and the bank’s monetary policy committee wanted to see another batch of inflation and labor market prints before acting.

Rob Wood, chief U.K. economist at Pantheon Macroeconomics, was among the economists expecting a Christmas rate cut whether the latest GDP data showed a bounce, or not.

“We believe the MPC [BOE’s monetary policy committee) would reduce rates in December even with an upside GDP surprise, as a likely contractionary Budget on November 26 dominates its deliberations,” Wood said in emailed analysis ahead of the GDP data.

“But growth is proving resilient, running close to the U.K.’s potential of 0.3% quarter-to-quarter despite strong headwinds from fiscal and global uncertainty.”

Wood believed that resilient growth would limit the emergence of spare capacity, making it trickier for the BOE to cut interest rates again in 2026, although some economists predict there could be two rate cuts next year.