Britain’s economy stagnated in the third quarter — its weakest performance in a year — as activity in the real estate sector fell, weighed down by high interest rates.
The zero growth in output in the July-to-September period, compared with the previous quarter, was mostly the result of a 0.1% drop in the broader services sector, which accounts for the bulk of the UK economy, the Office for National Statistics (ONS) said Friday.
The latest reading marks a slowdown from a 0.2% increase in gross domestic product in the second quarter.
The data indicates that the 14 consecutive interest rate hikes implemented by the Bank of England since late 2021 are constraining the economy, analysts said.
The real estate sector — which accounts for 13% of UK economic output and is particularly sensitive to higher borrowing costs — has taken a knock this year. Activity dipped 0.4% in the latest quarter. And earlier this week, Halifax, a major mortgage lender, said the price of the average residential property was down 3.2% in October from the same month in 2022.
According to Paul Dales, chief UK economist at Capital Economics, the GDP data “suggests that the drag from higher interest rates is growing.”
“It comes down to semantics (as) to whether or not the economy is in recession, but we’re fairly confident it is going to be subdued for a while yet,” he wrote in a note.
The Bank of England forecasts a 0.5% rise in GDP overall this year and virtually no growth in 2024.
ONS numbers on productivity released Thursday painted a similar picture of an economy stuck in the slow lane. The data — which measures how efficiently the economy is making use of labor and capital — showed that UK productivity had barely improved since 2007. Over the longer term, rising productivity is a prerequisite for higher living standards.
“Britain is a stagnation nation that has struggled to secure sustained economic growth since the financial crisis,” James Smith, research director at the Resolution Foundation, a think tank, wrote in a note Friday.
UK finance minister Jeremy Hunt is due to outline the government’s plans to boost economic growth later this month.
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