The service sector, which constitutes the backbone of the UK economy, underperformed in the third quarter, as evidenced by a downward revision that adjusted quarterly expectations from growth of 0.1% to a rather uninspiring zero increaseManufacturing and construction sectors also reported slight reductions in their growth forecasts, further highlighting a pervasive sense of stagnation.

On a per capita basis, the GDP shrinkage amounted to 0.2% for the third quarterDespite these troubling figures, the pound's exchange rate with the dollar saw little fluctuation, holding steady at around $1.2565 immediately following the announcement.

The Labour Party, having assumed power in July, is now faced with intense scrutiny regarding its economic performance in what is effectively its first quarter in charge

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The revision of growth figures adds pressure on the party's newly appointed government, particularly for Prime Minister Keir Starmer, who rode into office with promises to stimulate growth and improve living standardsHowever, despite a robust performance in the G7 during the earlier months of the year, the UK economy has since encountered a drastic downturnBusiness leaders and consumers alike have begun to attribute this decline to expressions of pessimism regarding the state of public finances, especially with significant tax hikes anticipated in the upcoming budget announcement on October 30.

Analyst assessments suggest the retreat in growth stems from the Labour government's approach to economic policyStatements made by both the Prime Minister and the Chancellor regarding potential tax increases have resulted in conservative outlooks for both corporate investments and household spending, contributing to a prevailing air of caution.

The Bank of England has recently adjusted its growth projections for the fourth quarter to a mere zero percent, with various institutions lowering their annual growth forecasts for the UK

Current predictions indicate that the economy may achieve zero growth for the last three months of the year, accompanied by dismal readings from purchasing manager surveys.

Moreover, the Confederation of British Industry has raised alarms regarding a looming significant drop in private sector activity over the next quarter, attributing this forecast to an impending payroll tax increase, projected to burden employers with £26 billion ($32.7 billion).

“While the economy showed resilience during the first half of the year, stagnation has set in for the latter half due to rising interest rates, weaker overseas demand, and apprehension over budgetary policies,” noted Paul Dales, chief UK economist at Capital Economics“Recent data suggests that there isn’t much momentum heading into the year-end period.”

Further insights from the ONS revealed that, for the first time in a year, disposable income per capita remained unchanged in the third quarterThe savings rate, a measure of personal financial prudence, slightly dipped from a three-year high of 10.3% in the second quarter down to 10.1%, although this is still considerably above pre-pandemic levels, reflecting ongoing consumer caution.

Looking ahead to 2025, household consumption may either become a larger drag on or a potential catalyst for the UK economy, hinging largely on whether families feel compelled to draw down their excess savings