UK growth slows to 0.1% as car production slump drags economy ahead of budget

UK economic growth slowed sharply in the third quarter, rising just 0.1% between July and September, as a sharp decline in car production and weak consumer spending weighed on activity ahead of the Chancellor’s Budget later this month.

The figure, published by the Office for National Statistics, was below analysts’ expectations of 0.2% and represented a clear slowdown from the 0.3% growth recorded between April and June and the 0.7% expansion at the start of the year.

The contraction was driven by a “significant” decline in car production, after a cyberattack on Jaguar Land Rover forced the UK’s largest carmaker to halt manufacturing for five weeks, the Office for National Statistics said. The attack, which began on August 31, led to a 28.6% collapse in car production in September, pushing overall production down by 2%.

Even excluding the turmoil in the auto sector, the broader economy has shown signs of fragility. Growth in services and construction slowed compared to the previous quarter, with consumer spending remaining weak as households continue to face rising living costs and uncertainty ahead of the November 26 Budget.

Economists warned that the lower-than-expected numbers underscore the challenges facing Chancellor Rachel Reeves, who has repeatedly put economic growth at the heart of her agenda but is widely expected to announce tax increases to plug the fiscal deficit.

Some analysts now believe that weak GDP data increases the likelihood of a Bank of England rate cut as early as December. Rob Wood, chief UK economist at Pantheon Macroeconomics, said the figures were “almost the equivalent of a December rate cut”, especially when combined with the disappointing labor market figures published earlier this week.

For many businesses, the slowdown reflects the lingering impact of last year’s Budget, which increased employers’ National Insurance contributions and increased the National Living Wage.

Alan Jones, managing director of TC Morris, a pie manufacturer in Dudley that employs about 50 people, said running costs had risen by £200,000 this year.

“I think there is a level where people are willing to pay for a pork pie,” he said. “We were able to pass some increases, but we had to absorb a fair amount. We need to see some easing in the budget – lower taxes, lower energy costs, more support for investment.”

Responding to the data, Reeves said the UK still had the fastest growing economy among the G7 in the first half of the year, but acknowledged that “more needs to be done to build an economy that works for the working class”. She said her next budget would make “fair decisions” to reduce waiting lists, reduce the national debt and lower the cost of living.

Shadow Chancellor Mel Stride accused the government of losing its authority, saying that Sir Keir Starmer had “stripped the Chancellor of responsibility for the budget.”

Liz McKeown, director of economic statistics at the Office for National Statistics, highlighted the “particularly marked decline” in car production due to the cyber incident and the downturn in the volatile pharmaceutical sector.

“Services were the main contributor to growth, with good performances by business leasing, live events and retail, partly offset by declines in R&D and hair and beauty salons,” she said.

Ruth Gregory, deputy chief UK economist at Capital Economics, said the outlook remains sluggish even without the disruption from JLR. “The economy is struggling to gain decent momentum,” she said. “With tax increases in the next Budget likely to reduce GDP by around 0.2% in 2026, there is little reason to believe growth will accelerate much from here.”