UK economy stagnates as high borrowing costs hit activity

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The UK economy stagnated in the three months to September, according to official figures that highlight the challenge facing chancellor Jeremy Hunt as he seeks to boost growth in his upcoming Autumn Statement.

Gross domestic product was unchanged in the third quarter compared with the previous three months, data published by the Office for National Statistics showed on Friday.

Zero growth in the latest quarter was down from a 0.2 per cent expansion in the three months to June, suggesting that high borrowing costs are taking a toll on activity and the cost of living crunch is still hitting household spending.

The figure was slightly better than the 0.1 per cent contraction forecast by economists in a Reuters poll, but in line with the Bank of England’s expectations. The BoE has forecast that the economy will be flat in 2024.

Friday’s data eases concerns among many analysts that high interest rates are pushing the economy into recession. Some resilience in the economy in the face of high rates could also lead the central bank to keep them higher for longer, as it seeks to return inflation to the 2 per cent target.

“The key point is that the economy is not weak enough to reduce core inflation and wage growth quickly,” said Paul Dales, economist at the consultancy Capital Economics. He forecast that the BoE would only be able to cut interest rates in late 2024, rather than in mid-2024 as widely expected.

Output rose 0.2 per cent month on month in September, the ONS said, stronger than analysts’ expectations of no change.

That growth was driven by the health sector, which was helped by fewer strikes. It was also boosted by slower growth than previously estimated for August, revised down to 0.1 per cent from 0.2 per cent.

But the data showed overall that the economy — which is no bigger than in May last year — continued to flatline…