Higher interest rates, according to the chancellor, are weighing on growth, but the economy has done better than projected this year.
Forecasters predict that the economy will remain stagnant for some months.
The Bank of England announced last week that the UK is likely to have zero growth until 2025, albeit it is projected to avoid a recession.
Until September, the Bank of England had hiked interest rates 14 times in a row in an attempt to slow price increases.
While hiking interest rates can reduce inflation (the rate at which prices rise), it has a negative impact on economic growth by making it more expensive for consumers and businesses to borrow money.
Interest rates have reached a 15-year high of 5.25% and are projected to stay there for some time. Last Monday, Bank of England Governor Andrew Bailey stated that it was “much too early” to consider rate decreases.
Capital Economics’ senior UK economist, Paul Dales, said the latest data indicated that “the drag from higher interest rates is growing,” but he does not anticipate the Bank to begin decreasing rates until late next year.
What exactly is GDP, and how does it impact me?
The bank warns that cutting interest rates is premature.
According to the Office for National Statistics (ONS), the latest growth data paint a bleak image across all sectors of the economy.
The services sector fell somewhat over the three-month period, while manufacturing and construction grew slightly.
“Naturally, interest rates do have an impact,” Chancellor Jeremy Hunt told the BBC. “The Treasury’s judgment is that the main reason growth has slowed is because of that.”
“What is perhaps a surprise to many people is that the economy has been much stronger than people thought,” he added.
“Most people expected it to contract this year.” It has really increased, which provides us with a solid base for the future.”
When asked if he planned to lower taxes in the Autumn Statement on November 22, Mr Hunt said he wanted to decrease the tax burden, but that business tax cuts would take precedence over personal tax cuts. “I’ve always been clear that low taxes are part of a dynamic, successful, entrepreneurial economy, but what I’ve said is my priority is growth, so cutting business taxes is the most important thing at this stage,” he told reporters.
The latest results, according to Labour’s shadow chancellor Rachel Reeves, are “further evidence that the economy is not working,” while Liberal Democrat Treasury spokesperson Sarah Olney claimed the Conservatives had “delivered a hammer blow to our economy, leading us down a no-growth path.”
