Slow growth raises stakes even higher for the Budget

"Today's disappointing growth figures reflect that the UK has returned to the slower lanes of growth, having outperformed earlier in the year. The 0.1% growth seen in the July-to-September quarter was below forecasts, and the economy shrank in the month of September. A breakdown in car production following the cyber-attack on Jaguar Land Rover does explain September's contraction, and why the overall growth figures were worse than expected."

"The ONS told me that if vehicle production had been flat rather than the worst monthly fall on record outside of the pandemic, GDP in September would have gone up. That is not the full story, though. Momentum in the economy has clearly flagged. In particular, slowdowns in consumer-facing services and business investment are a key concern. Higher costs of employment and the constantly rolling uncertainty are not helping."

"A key objective for the Budget is to end the constant doom loop of speculation about tax changes. There will be a bigger buffer against fiscal shocks, and potential changes to how often the chancellor's borrowing rules are assessed. Certainty has a price, however, in terms of tax rises. The Budget will try to target the rise in tax away from worker pay packets and investors, but the sums involved make this a tricky task."

GDP grew 0.1% in the July–September quarter but the economy contracted in September. A sharp fall in vehicle production after a Jaguar Land Rover cyber-attack significantly drove the September decline; the ONS estimates GDP would have risen if vehicle production had been flat. Economic momentum has weakened, with slowdowns in consumer-facing services and business investment. Higher employment costs and ongoing uncertainty dampen activity, while consumers remain cautious with elevated savings and firms delay investment. The Budget aims to reduce tax-change speculation, build a bigger fiscal buffer and possibly alter borrowing-rule timing, though that may require targeted tax rises. Monetary easing appears more likely, with government borrowing and fixed mortgage costs starting to fall.

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