The UK economy grew by 0.1%, below expectations

The UK economy showed a surprise slowdown in September and only modest growth in the third quarter following a strong rebound earlier in the year, preliminary figures showed on Friday.

Gross domestic product fell 0.1% in September, following growth of just 0.2% the previous month, according to the Office for National Statistics. Economists polled by Reuters had expected growth of 0.2% in September.

In the third quarter as a whole, the British economy grew by 0.1% compared to the previous quarter. That’s below the 0.2% growth expected by economists and follows a 0.5% increase in the second quarter of the year.

The UK’s leading services sector also grew by just 0.1% in the quarter, the Office for National Statistics said. Construction rose 0.8%, while production fell 0.2% in the month.

It comes after UK inflation fell sharply to 1.7% in September, falling below the Bank of England’s 2% target for the first time since April 2021. The drop in inflation helped pave the way for the central bank to cut rates by 25. points on November 7, bringing its key rate to 4.75%.

The Bank of England said last week it expects the Labor Government’s budget for tax increases to boost GDP by 0.75 percentage points over the course of the year. Policymakers also noted that the government’s monetary policy led to an increase in their inflation forecasts.

UK Chancellor of the Exchequer Rachel Reeves said on Friday she was “not satisfied” with the numbers.

“In my Budget, I took tough decisions to fix the foundations and stabilize our public finances. We will now deliver growth through investment and change 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, “he said in a statement.

Analysts have flagged fundamental weaknesses in the economy and growing risks from political unrest as potential obstacles to continued growth.

“It is clear that the economy has less momentum than we previously thought. And it is surprising that the economy has grown in two of the last six months,” said Ruth Gregory, deputy chief economist for the UK at Capital Economics.

“Overall, despite the slowdown in September, we still expect GDP growth to pick up in the coming quarters as government debt spending boosts activity and as high inflation and high interest rates continue to abate,” Gregory said.

A rate cut at the next BOE meeting in December now looks “unlikely,” according to Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales. He said the risk of inflation and growing headwinds around the world would prevent policymakers from pursuing further rate cuts.

“These figures suggest that the economy has been in a bubble even before the budget, as a slowdown in business and consumer confidence helped weaken output throughout the third quarter, particularly in September,” Thiru said in an emailed comment.

The outcome of the recent US election has fostered great uncertainty about the global economic impact of another term from President-elect Donald Trump. Although Trump’s proposed tariffs are expected to rise sharply and hit the European economy hard, some analysts say the measures could provide opportunities for the British economy.

Bank of England Governor Andrew Bailey offered little last week on the bank’s views on Trump’s tax plan, but hinted at the risk of global isolation.

“Let’s wait and see where things go. I will not decide what may or may not happen,” he told reporters during a press conference.

I British pound it was lower against the US dollar by mid-afternoon in London. The euro strengthened 0.4% against the pound following Friday’s GDP release.