GDP growth in the third quarter was only 0.1%! The UK economy suddenly slumped before the budget.

UK economic growth almost stagnated in the third quarter, as production activities were affected by a cyber attack on Jaguar Land Rover in September, and concerns about potential tax increases in the budget to be released by the Labour government. Data released by the UK's Office for National Statistics on Thursday showed that Gross Domestic Product (GDP) only grew by 0.1%, lower than the 0.3% growth in the second quarter. This growth was also below the 0.2% predicted by economists and the Bank of England. In September alone, the economy contracted by 0.1%, as weak growth in the service sector was offset by a sharp decline in manufacturing. Following the release of the data, the exchange rate of the pound against the US dollar briefly fell, but reversed course as the dollar weakened more broadly. Overall, UK bond prices remained stable. After leading the G7 group in the first half of the year, the UK economy has returned to a slower growth pace. Evidence from the real estate market to business confidence surveys suggests that consumers and businesses are delaying spending decisions due to concerns about the significant tax increases that Chancellor Rachel Reeves is expected to announce in the budget on November 26. "In general, facing pressure from tax increases and weak overseas economies, the UK economy is struggling to gain sufficient growth momentum," said Ruth Gregory, Deputy Chief UK Economist at Capital Economics. "The tax measures in the upcoming budget could reduce GDP by around 0.2% in 2026, so there is no reason to expect a significant acceleration in economic growth from the current level." Household and government spending only grew slightly from July to September, while business investment declined for the second consecutive quarter. Reeves' management of the finances has deviated from her self-imposed fiscal rules due to lower growth expectations and costly policy reversals, leading to a deficit in the billions of pounds. This has left her with no choice but to go against election promises and implement widespread tax increases. The Labour government is under immense political pressure ahead of the budget release, especially after accusations that Downing Street advisers were involved in "smearing" Health Secretary Wes Streitling in the media they accused Streitling of conspiring to overthrow Prime Minister Stammer. The Prime Minister has explicitly stated that these allegations are "completely unacceptable." Weak economic growth may further convince Bank of England Governor Bailey and his colleagues that inflation pressures are easing. After data on Tuesday showed the unemployment rate at its highest level since the pandemic, traders increased bets on a rate cut by the Bank of England. The market now sees an over 80% chance of a rate cut next month. Impact of Jaguar Land Rover incident A key factor contributing to the weak economy in September was a cyber attack on the UK's largest car manufacturer, Jaguar Land Rover, which resulted in a sharp drop in UK car production. After being forced to halt production for over five weeks, Jaguar Land Rover is currently slowly resuming operations. This disruption affected hundreds of suppliers and caused chaos for small and medium-sized businesses that rely on orders from the luxury brand. The UK government had to intervene, providing 1.5 billion (approximately $2 billion) in emergency loan guarantees. Overall, output in the car, trailer, and semi-trailer manufacturing industry fell by nearly 30% in September, marking the largest decline since the 2020 pandemic and dragging down GDP by 0.17 percentage points for the month. Manufacturing output as a whole declined by 1.7% in September, with industrial output dropping by 2%; meanwhile, service sector output grew by 0.2% month-on-month, driven by strong performances in commercial leasing, on-site activities, and retail sales. Trade with the US affected The UK's National Statistics Office reported that UK exports of goods to the US decreased by 11.4% (about 500 million), reaching the lowest level since January 2022. The office added that export data has remained weak since US President Trump announced tariffs in April. The decline in exports to the US covered most categories of goods, with chemical exports falling by 300 million and machinery and transport equipment exports dropping by 100 million. Overall, UK exports in the third quarter fell by 0.1% compared to the previous quarter (revised growth of 0.4%), while imports declined by 0.3%.