LONDON – Britain's Treasury chief Rachel Reeves said Friday that she is “not satisfied” by official figures showing the British economy's rebound from recession slowed down sharply in the third quarter of the year, as the country's top central banker voiced his concerns about the economic damage wrought by the U.K.'s departure from the European Union.
The Office for National Statistics said growth during the July-to-September period was just 0.1%. That was lower than the 0.5% recorded in the previous three-month period and below market expectations of 0.2%.
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The statistics agency said overall output in September shrank, a development that has fueled accusations from critics of the new Labour government that its pessimism dragged the economy down in its first few weeks in office. The Conservatives’ Treasury spokesperson, Mel Stride said the deterioration in business and consumer confidence was a direct result of the government “talking the economy down.”
On coming to power in July for the first time in 14 years, the government described its economic inheritance from the former Conservative administration as the bleakest in decades, requiring urgent action to fix the public finances.
Reeves used the budget to raise taxes sharply, mainly on business, as well as increasing spending on public services, such as the state-run National Health Service, and borrowing for investment.
“Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” Reeves said following Friday's figures.
Prime Minister Keir Starmer has said raising economic growth his government's number one priority over the next five years. Since the global financial crisis in 2008-9, the British economy has underperformed relative to previous years and actually slipped into a modest recession in 2023.
The Resolution Foundation think tank said the British economy has been a “rollercoaster” over the past year and that its medium-term performance has been “staid and stagnant”
As a result of the third-quarter slowdown, the think tank said the U.K. has fallen below the U.S. at the top of this year's growth leaderboard of the Group of Seven leading industrial economies.
“This all serves to highlight that the government’s mission to renew strong economic growth is both extremely hard, and absolutely necessary," said Simon Pittaway, the think tank's senior economist.
One factor hobbling the economy, many economists say, is Brexit, when Britain left the EU in 2020, which has made trade more difficult. Though the post-Brexit trade agreement between the two sides ensured there would be no tariffs placed on goods, exporters are finding life tough.
As part of Brexit, the U.K. also left the frictionless single market and the customs union, which means firms have to file forms and customs declarations for the first time in years, among other hurdles.
On Thursday evening, Bank of England Governor Andrew Bailey said he had to “point out the consequences" of Brexit, even though as an official he had no position on Brexit.
“The changing trading relationship with the EU has weighed on the level of potential supply," he said. “It underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people.”
Starmer has said he wants to “reset” the relationship with the EU but has ruled out the possibility of Britain rejoining the single market or the customs union, or of a return of the freedom of movement of people.
However, ruling those options out doesn't leave the British government much room for maneuver, Starmer has vowed to reduce some of the post-Brexit barriers to the movement of people and goods that have undermined ties between Britain and the bloc.
This may see a new deal to limit veterinary checks on food at the border, an agreement on the mutual recognition of professional standards or the introduction of a program that would allow young EU and U.K. citizens to study, work and live for short periods in the U.K. and the EU, respectively.
Most economists agree, though, that these changes would only modestly improve growth, which the government is counting on to improve Britain's stretched public services.