UK Economy Hits the Brakes: Car Production Crisis Slows Growth

Economic growth in the UK has taken a disappointing turn, dropping to 0.1% between July and September, according to the latest figures from the Office for National Statistics (ONS). This growth rate fell short of the 0.2% that analysts had anticipated and poses a significant challenge for Chancellor Rachel Reeves, who has prioritized economic growth ahead of the upcoming Budget where tax increases are expected.

A major factor in this slowdown was a substantial decline in car production, attributed to a cyber-attack on Jaguar Land Rover (JLR) that began on August 31, resulting in halted production for five weeks. In September alone, car output plummeted by 28.6%, contributing to an overall 2% decrease in production output. Even when isolating the effects of the JLR incident, the other sectors still reflected sluggish growth. While consumer services and construction showed some growth, it was slower than in the previous quarter. Consumer spending remains weak, raising concerns about continued growth challenges in the months ahead.

The recent GDP figures signal a decline from 0.3% growth registered in the preceding quarter and a sharp drop from 0.7% earlier in the year. In September, the economy saw a 0.1% contraction. Analysts, such as Rob Wood from Pantheon Macroeconomics, suggest that these disappointing numbers may increase the likelihood of a Bank of England rate cut in December. Businesses, such as pie manufacturer TC Morris, are feeling the pinch from increased costs due to last year’s Budget, which raised National Insurance contributions and the national living wage. Business owners like Allan Jones are advocating for tax relief and assistance in investment in the upcoming Budget to alleviate their burdens.

In response to the downturn, Reeves acknowledged that while the UK had experienced the fastest growth in the G7 during the first half of the year, substantial work is still needed to ensure that the economy benefits the working population. She promised “fair decisions” to strengthen the economy, including reducing waiting lists, national debt, and the cost of living. Conversely, shadow chancellor Mel Stride criticized the current administration for lacking control over economic policies, citing a disconnect in responsibilities regarding the Budget.

ONS director Liz McKeown noted that the car production dip notably influenced the GDP report, along with declines in various sectors, particularly pharmaceuticals. Although services remained the main growth driver, reports indicate that the UK economy is still facing challenges in maintaining momentum. Ruth Gregory, deputy chief UK economist at Capital Economics, pointed out that even removing the impact of the JLR attack, the outlook remains grim, with a forecasted 0.2% GDP reduction linked to tax increases in the upcoming Budget, leaving little incentive for an upswing in economic growth.