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UK Economic Stagnation Highlights Challenges for Starmer’s New Government

The British economy showed no growth in the third quarter, according to revised data from the Office for National Statistics (ONS), highlighting economic challenges facing Prime Minister Keir Starmer‘s government.

The ONS adjusted its estimate of GDP growth for the July-to-September period to 0.0%, down from an initial projection of 0.1% growth. It also lowered second-quarter growth figures to 0.4% from 0.5%.

Economic Stagnation and Policy Responses

Taking office in July, Starmer and Finance Minister Rachel Reeves inherited a sluggish economy. Reeves described the latest GDP data as indicative of “15 years of neglect” under previous Conservative governments.

In response, Starmer’s government has introduced a series of measures, including tax increases for employers announced in the October 30 budget, aimed at fostering sustainable, long-term economic growth.

Key Sectoral Performance

The lack of growth in the third quarter reflects mixed sectoral performance:

  • Services: No growth, with bars, restaurants, legal firms, and advertising among the weakest performers.
  • Construction: Increased by 0.7% but was offset by a 0.4% decline in production.

Household Strain and Savings Decline

The ONS data also highlighted stagnant living standards, with households relying more on savings to meet expenditures, though savings levels remain historically high.

Current Account Deficit Narrows

In a brighter development, the UK’s current account deficit fell to £18.1 billion in Q3, improving from £24 billion in Q2. This result exceeded economists’ expectations of a £22.5 billion shortfall, according to a Reuters poll.

Market Reaction

The British pound remained little changed following the release of the ONS data, reflecting cautious investor sentiment amid persistent economic challenges.

As the Bank of England forecasts zero growth for the fourth quarter and holds borrowing costs steady due to inflation risks, the economic environment remains difficult. Prime Minister Starmer’s government faces the dual task of addressing immediate economic stagnation and building confidence in long-term recovery measures.

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