The Labour government has got itself and the economy stuck in a corner
After a positive first half of the year, UK economic growth is slowly grinding to a halt once again, with GDP failing to grow month-on-month in July and slowing to just 0.2% on a three-month basis.
This increase was driven primarily by the services and construction sectors, but production output fell by 1.3%.
The data will heap added pressure onto Prime Minister Keir Starmer and Chancellor Rachel Reeves, who are facing increased pressure due to the country’s recent poor economic data.
Growth is slowing in these sectors and is likely the result of actions taken by the Labour government now being realised, with the increase in employer national insurance contributions having a significant impact on business confidence, said Lindsay James (Investment Strategist at Quilter).
“With the summer now over and the economy supposedly getting out of its slumber, we now face continuing uncertainty in the lead up to the budget in November, given the precarious position the Chancellor finds the public finances in,” she said,
It is estimated that the fiscal hole that needs to be plugged is anywhere between £20 billion and £50 billion.
While that is a wide range, it means one thing for a government that has shown it will struggle to cut spending – more tax rises, said James.
“Speculation is already rife about which taxes will be raised, and without the ability to raise the main revenue generators – income tax, national insurance and VAT – the government is left with targeting multiple sectors for small amounts of revenue,” she said.
“This is increasing the headwinds for the UK economy and with still over two months to go, GDP readings for the second half of the year are unlikely to pretty reading. For a government under as much pressure as it is at the moment, this will be a very difficult corner to get itself out of.”
