The UK economy flatlined in the third quarter, avoiding a technical recession in the face of rising interest rates and stubbornly high inflation.
While UK Gross Domestic Product (GDP) grew by 0.2% in September, in a broader context, UK GDP has exhibited zero growth in the three months ending September 2023, and forecasters warned of stagnation in the months ahead.
The ONS revised August 2023’s growth rate to 0.1%, which was initially reported as 0.2%.
UK-wide strikes in September UK were highlighted as a factor impacting GDP growth during the period.
Danni Hewson, AJ Bell head of financial analysis, noted that the stagnant growth “is not exactly the kind of headline any government wants. But with this last lot of GDP figures, the UK economy has at least avoided falling into a technical recession this year.”
Growth was influenced by unusually warm weather, which boosted the struggling construction sector.
This September was the joint-warmest with September 1884, as reported by the Met Office. The mean temperature was 15.2°C.
However, consumer businesses faced difficulties due to cost of living pressures, with retailers particularly affected by high temperatures discouraging winter clothing purchases.
When it comes to the construction and real estate sectors, “rate hikes have made potential home buyers think twice, and although the Bank of England has pressed the pause button, at least for now, the increased cost of borrowing is likely to keep activity in the housing market subdued,” Danni Hewson pointed out.
Additionally, Hewson notes that “all sectors are struggling—there are no stars in this set of figures, no big boosts to offset falls elsewhere. But think back to where we were this time last year, as inflation was reaching its peak, and there is cause for a degree of optimism.”
She added, however, that “stagnant waters can begin to smell quite quickly, and no growth suggests a degree of economic resilience, which does mean no stimulative rate cuts are likely in the near term.”