UK Third Quarter Growth Slows Due to Sharp Car Production Decline

The UK economy experienced a slowdown in the third quarter of 2023, growing by just 0.1% from July to September. This figure fell short of the anticipated 0.2% growth and poses challenges for Chancellor Rachel Reeves. The disappointing statistics come less than two weeks before the expected Budget announcement, during which tax increases may be implemented.

Decline in Car Production

Official statistics from the Office for National Statistics (ONS) indicated a significant decline in car production, particularly in September. This situation was exacerbated by a cyber-attack on Jaguar Land Rover, which began on August 31 and halted production for five weeks.

• Overall production output fell by 2% in September.
• Car production dropped by 28.6% due to the cyber incident.

Sector Performance

Although the services sector, which encompasses retail, real estate, and entertainment, showed growth, it was slower compared to the previous quarter. Construction also continued to grow, albeit at a reduced rate.

Consumer spending remains sluggish, raising concerns among economists about its potential impact on future growth. The latest GDP figures indicated a marked slowdown from 0.3% growth in the previous quarter and 0.7% in the first quarter of 2023. In September alone, the economy contracted by 0.1%.

Impact on Businesses

For many businesses, the slow growth reflects the consequences of last year’s Budget, which raised National Insurance contributions and the national living wage. Allan Jones, managing director of TC Morris, a pie manufacturer, remarked on the £200,000 increase in operational costs this year.

• Jones’ company employs approximately 50 people.
• He expressed hopes for tax reductions and government-supported investment initiatives to ease financial pressure.

Response from Government Officials

Chancellor Reeves acknowledged that while the UK had the fastest-growing economy in the G7 during the first half of 2023, further work was necessary to support the workforce. She emphasized that her forthcoming Budget would focus on decisions meant to strengthen the economy, reduce waiting lists, and manage the cost of living.

In contrast, Shadow Chancellor Mel Stride criticized the current administration, stating that the Prime Minister and Chancellor are “in office but not in power.” He asserted that the opposition leader had diminished the Chancellor’s authority regarding the Budget.

Future Projections

According to Ruth Gregory from Capital Economics, even without the effects of the JLR cyber-attack, the UK economy is struggling to build momentum. Anticipated tax rises in the upcoming Budget are predicted to lower GDP by about 0.2% in 2026, suggesting limited potential for growth acceleration moving forward. The current economic landscape presents significant challenges that will require strategic responses from policymakers.