The economy stalls under Labour as growth is adjusted to zero in the months following the election, raising concerns of a potential 2025 recession caused by decisions made at Downing Street.

Labour is facing fresh questions about its stewardship of the economy today as official growth figures were revised down to zero. 

The Office for National Statistics said UK GDP flatlined in the three months from July, when Sir Keir Starmer swept to power.

The government is already under mounting pressure over the October Budget, which  critics say hammered firms with huge cost increases.

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The employers’ organisation said the outlook for the start of 2025 was ‘firmly negative’ across all main sectors, including manufacturing, services and retail – with firms directly blaming the £25 billion Budget hike in employers’ National Insurance. 

The ONS today said that UK gross domestic product (GDP) showed no growth between July and September, in the run up to the Autumn budget.

Statisticians had previously estimated 0.1 per cent growth for the quarter.

The ONS also revised down its growth reading for the second quarter of 2024, to 0.4 per cent. In September, it said it thought GDP had increased by 0.5 per cent, which was itself a reduction on previous estimates.

This morning Ms Reeves said: ‘The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge.’

ONS director of economic statistics Liz McKeown said: ‘The economy was weaker in the second and third quarters of this year than our initial estimates suggested with bars and restaurants, legal firms and advertising, in particular, performing less well.

‘The household saving ratio fell a little in the latest period, though remains relatively high by historic standards.

‘Meanwhile, real household disposable income per head showed no growth.’

This morning Ms Reeves said: ‘The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge.

‘But this is only fuelling our fire to deliver for working people. 

‘The Budget and our Plan for Change will deliver sustainable long-term growth, putting more money in people’s pockets through increased investment and relentless reform.’

A CBI survey of 899 firms painted a downbeat picture of the country’s economic future. It found that private sector activity is expected to fall in the first three months of next year, with business optimism at its weakest since November 2022, after Liz Truss’s mini-Budget. 

The CBI said businesses were saying private sector employment ‘will be cut sharply’ in the first quarter of the year. 

Hiring intentions are at their weakest since October 2020 when Britain was in the grip of the Covid pandemic, and almost half of firms (48 per cent) are planning to cut staff numbers, while 62 per cent have scaled back pre-Budget hiring plans.

Employers also issued a warning about inflation, saying the NI rise would have a knock-on impact on prices and that wage growth remained ‘higher than the level consistent’ with the Bank of England’s 2 per cent target. Official figures last week showed that inflation rose for the second month running to 2.6 per cent.

Alpesh Paleja, the CBI’s deputy chief economist, said: ‘There is little festive cheer in our latest surveys, which suggest that the economy is headed for – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.

‘Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer National Insurance contributions – exacerbating an already tepid demand environment.’

The warning follows recent figures showing the economy shrank for the second month in a row in October, causing the Bank of England to cut its growth forecast for the final quarter of this year to zero.

The Bank’s former deputy governor, Sir Charlie Bean, yesterday said the Office for Budget Responsibility (OBR) was also likely to cut its official forecasts for next year, having previously predicted growth of 2 per cent. 

He told Sky News: ‘If the OBR were to conduct new forecasts now, they would be downgrading that growth forecast simply because they have information about growth at the back end of this year, which they didn’t previously have. So it is reasonable to expect them to project lower growth for 2025.’

Tory business spokesperson Andrew Griffith said the country could be heading for a ‘recession… made in Downing Street’

Tory business spokesman Andrew Griffith accused Ms Reeves of creating ‘a hostile climate for aspiration, for investment, and for growth’. 

He added: ‘The Chancellor’s tax-raising spree and trash-talking her economic inheritance is literally killing businesses and jobs.

‘If there is a recession – and based on these CBI expectations that seems increasingly likely – it will be one made in Downing Street. Labour need to urgently change course before the damage they are doing becomes even greater.’

Commons leader Lucy Powell yesterday admitted that the NI raid at the Budget had created ‘consequences for business’ and that growth figures were ‘disappointing’. 

But she added: ‘We took the decision to put a record level of investment into our National Health Service to bring down those waiting lists… because if you can’t work, you can’t go to work.

‘And these chronic factors in our economy, lack of housing supply, a sick economy, a sick population, a poor education, poor skills, are what is holding our country back.’