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Chancellor Rachel Reeves admitted she had a “huge” task to turn the economy around, after growth in the third quarter and business groups warned of a difficult start to 2025.

Mel Stride, shadow chancellor, said “warning lights are flashing” after the Office for National Statistics said GDP had not grown in the three months to September, down from its first estimate of a 0.1 percent expansion.

It showed flat output in the dominant service sector following Labour’s July election victory, while manufacturing output fell 0.4 percent, offsetting a 0.7 percent rise in the construction sector.

Business groups have warned that bad growth seems imminent in the new year, and Reeves admitted: “The challenge we face is to fix our economy and properly fund our public finances after 15 years of neglect is huge.”

The CBI lobby group published survey findings on Monday that showed most private sector companies expected activity to fall in the three months to March, and “looked to the government to increase confidence and give them a reason to invest”.

The British Retail Consortium said its latest poll showed a significant drop in public spending intentions, leaving retailers facing “a challenging year . . . hit by low consumer demand and £7bn of new costs from the Budget set to hit the industry by 2025”.

If growth falls short of forecasts made in the Budget, it raises the prospect that the chancellor may have to offer spending cuts or higher taxes next year to ensure he continues to meet his borrowing rules.

Paul Johnson, head of the Institute for Fiscal Studies, warned that the chancellor may have to “go back for the money” in his Autumn 2025 Budget, in what would be a serious setback to Reeves’ credibility.

The government has put boosting growth at the center of its agenda but now faces the threat that the economy could contract in the last quarter of the year.

Stride said Reeves’ “disastrous Budget” – which included a £25bn increase in employers’ national insurance contributions – should be re-examined. “Every moment of delay further damages business confidence, output and employment,” he said.

The government’s preferred measures on living standards paint an equally bleak picture. The ONS said on Monday that real GDP per capita fell by 0.2 percent in the quarter and year, while early estimates showed that household disposable income stagnated in the second quarter, after growing by 1.4 percent in three months to June.

The data published earlier this month shows the GDP decreased 0.1 percent in Octoberthe second consecutive monthly contraction.

On Monday, the ONS also revised its estimate for growth in the second quarter from 0.5 per cent to 0.4 per cent, indicating that the economy is starting to slow earlier than previously thought.

Recent figures point to a softening of the job market, stubborn inflation and falling business confidence.

The Bank of England last week predicted zero expansion in the fourth quarter, from the previous forecast of 0.3 percent growth.

Economists said Monday’s low-revised GDP data contained some bright spots, with consumer spending growing at a healthy pace, business investment and the households no longer accumulate money in savings.

Paul Dales, of consultancy Capital Economics, said the downward revision in the third quarter was “primarily due to external influences rather than the domestic economy”, including a greater drag from net trade.

But the overall picture is that growth is “stalled”, he said, due to “prolonged drag from higher interest rates, weaker overseas demand and some policy concerns in the Budget”.