The UK economy flatlined between July and September, compared with the previous three months, as the impact of high interest rates and inflation weighed on consumers and businesses.
Zero growth in gross domestic product in the third quarter followed 0.2% growth in the second quarter, the Office for National Statistics said.
A slowdown in the property sector after a slump in house sales dragged down the services sector, while the transport sector also suffered a downturn, indicating that firms cut back on shipping goods across the country.
Most business surveys have shown falls in output and employment in recent months in reaction to falling consumer demand in the UK and elsewhere in Europe.
An increase in interest rates has dampened consumer spending, with many retailers signalling that they are prepared for a difficult festive period.
Inflation was unchanged at 6.7% in September to leave many workers who received pay rises below the consumer prices index suffering a loss of spending power.
Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “Flatlining quarterly UK GDP suggests that our economy lost momentum as the squeeze from inflation and higher borrowing costs suffocated output.”
Thiru, who overseas one of the largest surveys of business sentiment, said firms were downbeat about the outlook for the fourth quarter, which could be negative.
Jeremy Hunt said he planned to “knock inflation on its head” with an autumn statement on 22 November that “will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs”.
The shadow chancellor, Rachel Reeves, said the figures showed the government was failing in its mission to revive the economy.
“At the start of the year, Rishi Sunak and Jeremy Hunt promised to get the economy growing. These figures show that growth is flatlining and the British people are paying the price, with 25 Tory tax rises and higher mortgages,” she said.
The Bank of England last week left interest rates unchanged at 5.25% for a second consecutive time, amid signs the economy is weakening. It had previously raised interest rates 14 times since the end of 2021.
Thiru said the weakness of the economy should persuade the Bank of England to begin cutting interest rates sooner than financial markets expect next August.
“These downbeat GDP figures suggest the Bank of England may have overdone the interest rate rises, and with that, the case for rate setters to pivot towards loosening policy is likely to strengthen,” he said.
Paul Dales, the chief UK economist at the consultancy Capital Economics, said the 0.4% quarter-on-quarter decline in consumer spending was the first since the fourth quarter of 2022 “and suggests higher loan rates are biting harder”.
There was better news from the professional, scientific and technical activities subsector, which grew by 0.6%, while the biggest area of growth was in the arts, entertainment and recreation sector, which increased by 2.3%.
Economists polled by Reuters had expected a slightly worse third quarter, with a 0.1% contraction, but the economy grew by 0.2% in September, month on month, beating expectations of 0% growth.
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