Economy contracts in September in blow to Reeves' growth push

Britain's economy contracted unexpectedly in September and growth slowed to a crawl over the third quarter, data showed on Friday, an early setback for chancellor Rachel Reeves' ambitions to kick-start a sustained pickup.

Gross domestic product slipped by 0.1 per cent in monthly terms during September as the services sector flat-lined, while manufacturing and construction dropped, the Office for National Statistics said.

For the third quarter as whole, the economy grew by 0.1 per cent, slowing from 0.5 per cent growth during the second quarter.

Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2 per cent in the July-September period, slowing from the rapid growth of the first half of 2024 when the economy was rebounding from last year's shallow recession.

"Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers," Reeves said in response to the figures.

"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."

Last week, the BoE trimmed its annual growth forecast for 2024 to 1 per cent from 1.25 per cent but predicted a stronger 2025, reflecting a short-term boost to the economy from the big-spending budget plans of finance minister Rachel Reeves.

Britain's economic output has grown slowly since the Covid-19 pandemic. Only Germany, which was also hit hard by surging energy costs after Russia's invasion of Ukraine, has done noticeably worse among the largest advanced economies.

Prime minister Keir Starmer said he wanted the economy to reach annual growth of 2.5 per cent when campaigning for the July 4 election - a rate that Britain has not regularly achieved since before the 2008 financial crisis.

Reeves wants Britain to have the fastest per capita growth in gross domestic product among the Group of Seven advanced economies for two consecutive years.

(Reuters)