Quarterly economic commentary: July to September 2024

• Real gross domestic product (GDP) showed no growth (0.0%) in Quarter 3 (July to Sept) 2024, while real GDP per head declined slightly (by 0.2%).

• The UK current account deficit (excluding precious metals) widened to 2.8% of GDP in Quarter 2 (Apr to June) 2024, mainly led by a higher deficit in goods trade.

• There was a further cooling in labour demand in Quarter 3, as vacancies continued to fall and employment growth moderated, although the labour market remains tight overall.

• Annual growth in regular earnings was 4.9% in the three-month period from July to September 2024, but has since increased to 5.2% in the three months to October 2024.

• Headline 12-month consumer price inflation (CPI) was 2.6% in November 2024, while the annual rate of core inflation was 3.5%, down from its peak of 7.1% last spring.

There was no increase in output produced by the UK economy in Quarter 3 (July to Sept) 2024. This followed a 0.4% increase in Quarter 2 (Apr to June) and a 0.7% increase in Quarter 1 (Jan to Mar). This leaves UK economic output 0.9% higher in Quarter 3 compared with a year ago.

Real GDP per head is one proxy indicator for economic welfare. This fell by 0.2% in Quarter 3 2024, reversing some of the improvement over the first half of the year. UK real GDP per head was 0.2% lower compared with a year ago (see Figure 1).

The more timely monthly GDP figures showed that output has slowed in recent months, with GDP estimated to have shown little growth since March.

The volume of household expenditure increased for a third quarter in a row in Quarter 3 2024. Household spending is still lagging the increases in real household disposable income (RHDI) in recent quarters, pushing up the saving ratio to 10.1% in Quarter 3 2024. There might be intertemporal and precautionary savings motives underpinning these higher savings, as employment growth slowed this year and in the latest quarter of RHDI per head showed no growth (0.0%). Further information about savings motives can be found in our Households' finances and saving, UK: 2020 to 2024 article. Monthly retail sales figures in our Retail sales, Great Britain: November 2024 bulletin suggest that household spending had a weak start in Quarter 4 (Oct to Dec) 2024, as sales volumes fell by 0.7% in October and increased by 0.2% in November.

Private non-financial corporations (PNFC) remained a net borrower in Quarter 3 2024 for a sixth consecutive quarter. This reflected some weakening in corporate incomes, as profit margins have been squeezed and gross operating surplus (GOS) declined from last year's peak. At the same time, firms increased their investment spending in recent quarters, reversing the weakening in capital expenditure from last year.

The slowing of corporate incomes partly accounts for the lower rate of inflation of the implied price deflator for GDP, which increased by 3.2% in the year to Quarter 3 2024, down from 7.3% in the same period a year ago. Figure 2 shows that the contribution of unit labour costs and unit profits declined from their peaks in the first half of last year. More details about the GDP deflator as a measure of domestic inflation are explained in our Role of labour costs and profits in UK inflation: 2010 to 2023 article.

Public sector borrowing the difference between public sector spending and income - was £11.2 billion in November 2024, £3.4 billion less than in November 2023. Borrowing in the financial year to November 2024 was £113.2 billion, £0.4 billion less than at the same point in the last financial year but the third-highest financial year-to-November borrowing since monthly records began in January 1993.

Public sector net debt excluding public sector banks was provisionally estimated at 98.1% of GDP at the end of November 2024; this remains at levels last seen in the early 1960s. Public sector net financial liabilities excluding public sector banks were provisionally estimated at 84.6% of GDP at the end of November 2024; this was 2.2 percentage points more than at the end of November 2023.

For more information, please see our Public sector finances, UK: November 2024.

The UK was a net borrower from the rest of the world in Quarter 3 (July to Sept) 2024. The deficit in the current account excluding precious metals, which measures underlying trends in the UK's net borrowing position, was 2.8% of gross domestic product (GDP) in Quarter 3 2024. This was an increase in the deficit of 0.3 percentage points from Quarter 2 (Apr to June) 2024, indicating a slight deterioration of the UK trade balance. This reflects a smaller deficit in the trade of goods, along with a fall in the surplus of trade in services.

Precious metals contributed positively to the UK's trade balance, however, as the UK trade deficit including precious metals was 2.5% of GDP in Quarter 3 2024, this was a 0.9 percentage point smaller deficit than in the previous quarter.

The deficit in the total primary income widened between Quarter 2 2024 and Quarter 3 2024, as payments to foreign investors increased by more than income from UK investments abroad. However, this was partly offset by the narrowing of the deficit in secondary income in Quarter 3, mainly led by central government income flows during the same period.

On the financial account, the UK continues to see other investment inflows partly offset by net direct investment outflows. This is a relatively persistent trend since the coronavirus (COVID-19) pandemic, although in Quarter 3 2024 the other investment balance widened considerably, and the net direct investment outflow narrowed. Portfolio investment continues to be volatile, which is common in times of large changes in global financial conditions, as shifting investor sentiment and economic uncertainty often lead to fluctuations in capital flows and market activity.

Quarter 3 (July to Sept) 2024 saw a continuation of the cooling in the labour market seen in the first half of the year, as labour demand has continued to fall and nominal earnings growth has continued to moderate from its peak in mid-2023.

The ratio between the number of unemployed people and the number of job vacancies brings together the picture for labour supply and labour demand, giving an indication of the scarcity of available labour, relative to business demand for labour. Figure 4 shows that this ratio rose above its pre-coronavirus (COVID-19) pandemic position of 1.7 in the latest period, reaching 1.8 unemployed people per job vacancy in August to October 2024. A ratio at this level continues to indicate a tight labour market, where demand for labour is high relative to the available supply of labour, but remains higher than the historically tight position in the first half of 2022 when the ratio was 1.0.

The number of payrolled employees has been relatively flat through the course of 2024, with 44,000 more payrolled employees recorded in October 2024 compared with January 2024. The flash estimate for November 2024 indicates a decrease of 35,000 payrolled employees compared with October, though the flash estimate is subject to revision in subsequent months.

Given the tightness of the labour market, we continue to see relatively strong earnings inflation. The annual rate of growth for nominal earnings excluding bonuses picked up slightly in August to October 2024, to 5.2%, ending the run of generally slowing growth since the summer of 2023. This latest increase was driven largely by the private sector, where the annual growth rate in regular earnings was 5.4% for the latest period. External indicators such as the Bank of England Decision Maker Panel continue to expect slowing wage growth in the year ahead.

The headline rate of consumer price inflation (CPI) increased to 2.6% in November 2024, its fastest pace since March. Core inflation was 3.5% in November, where there was easing in underlying price pressures compared with its peak at 7.1% in May 2023. This still leaves UK core inflation among the highest compared with other advanced economies (see Table 1).

The persistence of UK core inflation was mainly led by services prices, which increased by 5.0% over the 12 months to November 2024. The more imports-led core goods price inflation was 1.1% over the same period, although this rate has increased from around 0.0% some months ago. Our alternative indicators of core inflation, discussed in our New estimates of core inflation, UK: 2022 article, also decreased from last year's peak, but they are still above the headline inflation rate (see Figure 5).

The annual inflation rate for food and non-alcoholic beverages prices was 2.0% in the 12-months to November 2024. This was up from 1.3% three months ago, but still markedly below its peak of close to 20.0% from early 2023. Most of this decline in the annual inflation rate from its peak was caused by base effects, as current food prices stabilised and sharp increases from the same period a year ago were not repeated.

Energy prices are still lower than a year ago, but the difference has narrowed because of an increase in the Ofgem price cap in October 2024 by about 10%. This was partly offset by transport fuel prices, which declined in the second half of this year compared with an increase over the same period last year.

According to the Bank of England and Ipsos Inflation Attitudes Survey, inflation expectations increased slightly in November 2024, with one-year-ahead expectations at 2.8% and five-year-ahead expectations at 3.4%. Conversely, input and output producer prices slowed from their peak in mid-2022, which filtered into consumer prices with a lag. For more information about producer prices, please see our Producer price inflation, UK: November 2024 bulletin.