The UK economy had zero growth between July and September and is expected to have stagnated over the entire second half of 2024, undermining Keir Starmer’s promise to reboot growth.
In an unexpected downgrade as Labour comes under pressure over its economic management since taking power in July, figures from the Office for National Statistics showed growth in the third quarter was revised down to zero, below an initial estimate of 0.1% made last month.
Growth in the second quarter was also downgraded, from 0.5% to 0.4%.
Related: Sharp fall in UK business activity forecast as economic gloom deepens
The ONS said the downgrade was driven by bars and restaurants, legal firms and advertising performing less well than it first expected.
The latest snapshot suggests the UK is on course for two consecutive quarters of flatlining activity. This follows a slump in business and consumer confidence amid gloomy rhetoric from the new government alongside £40bn of tax increases in the autumn budget.
The Bank of England last week warned UK growth would stagnate in the final three months of the year. Although falling short of the technical definition of a recession – regarded as two quarters of negative growth – the downgrade will come as a blow to the government after it made reviving growth its number one priority.
Labour has faced a challenging start in government, coming under intense scrutiny over its downbeat assessment of the economy after blaming the Conservatives for a dire inheritance that left no choice but to raise taxes.
After the growth revision the chancellor, Rachel Reeves, defended her budget measures while arguing that the government was focused on driving up “sustainable long-term growth” by reforming the economy.
“The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge,” she said.
Business leaders have warned growth and jobs will be put at risk by £40bn of tax increases Reeves announced in her autumn budget, with the bulk raised through a £25bn rise in employer national insurance contributions from April.
The CBI lobby group warned on Monday that the UK economy was “headed for the worst of all worlds” as firms came under pressure, with activity set for a “steep” decline in the first three months of 2025.
In its latest growth indicator survey, it found that private sector firms expect to cut down on hiring, reduce output and raise prices in the first quarter. Andrew Griffith, the shadow business secretary, said this signalled a recession “seems increasingly likely”.