The UK’s economy grew by just 0.1 per cent in November, below forecasts of 0.2 per cent, according to the Office for National Statistics (ONS). The subdued figure, announced on Friday, underscores the continued weakness in Britain’s recovery as Labour’s new government grapples with stubborn inflation, lukewarm consumer confidence, and looming global trade risks.
The ONS data revealed a slight upturn from two months of 0.1 per cent contraction, but analysts in the City had hoped for stronger growth. The disappointing figure prompted a modest slide in sterling, which dipped by 0.10 per cent against the dollar to $1.22 and by 0.25 per cent against the euro to €1.18.
Despite the lacklustre GDP figures, equity markets were buoyant. The FTSE 100 closed up 1.1 per cent, or 90.77 points, at 8,391.90, with the FTSE 250 also rising 1 per cent, up 194.08 points to 20,527.70. Government bond yields stayed flat, reflecting a fragile balance between investor caution and optimism sparked by surprisingly lower inflation data released earlier this week.
Rachel Reeves, the chancellor, acknowledged that while the economy had inched forward, more substantial progress will “take time”. Latest three-month data from the ONS confirms zero growth over the period to November, further highlighting the uphill battle facing the government.
Business sentiment remains wary in the wake of Labour’s October budget, which raised national insurance contributions by £25 billion and increased government spending by £70 billion. Many companies warn that this could force them to cut jobs and raise prices as they adapt to fresh tax obligations.
Reeves defended her plans, insisting that she has ended the “instability” wrought by the Conservatives: “This new government has come in with a determination, a No 1 mission, to grow the economy. That takes time,” she said. She will meet regulators to urge a stronger pro-growth focus, ahead of the spring statement and updated forecasts from the Office for Budget Responsibility (OBR) on 26 March.
The incoming inauguration of Donald Trump as US president has raised concerns about a potential trade war. Jonathan Reynolds, the business secretary, expressed unease about “the possibility of tariff war between friends,” pointing specifically to Trump’s pledge of at least 10 per cent on imports to the US.
Reeves also faces pressure to keep public finances in check. With market borrowing costs rising, speculation is mounting that the chancellor may be forced to either raise taxes or rein in spending further. For now, she maintains that the government remains committed to “root out waste in public spending” while prioritising growth.
The ONS’s unexpected dip in December inflation to 2.5 per cent has sparked optimism that the Bank of England could begin lowering interest rates, currently at 4.75 per cent. Thomas Pugh, economist at RSM UK, predicted a quarter-point rate cut in February as “a sure bet”.
Lower rates may offer respite to borrowers who have faced rapidly rising mortgage costs over the past year. Alan Taylor, the newest member of the Bank’s Monetary Policy Committee, indicated that four or five interest rate reductions could be on the table in 2025, a signal that the Bank is now more focused on stimulating an economy at risk of prolonged stagnation.
November’s modest 0.1 per cent growth in services contrasted with a 0.4 per cent uptick in construction and a 0.4 per cent dip in production. While construction was buoyed by commercial developments, manufacturing and oil and gas extraction continued to slump. Analysts warned these figures hardly alter the sense of a stalled economy heading into 2025.
The OBR projects 2 per cent GDP growth for 2025, although some City experts consider this overly optimistic, especially if a possible trade war, tax hikes, or another global downturn materialise.
For Reeves, sparking a sustained recovery is proving a formidable challenge. With eight months in office, Labour’s chancellor is under pressure to showcase tangible results. The City’s verdict on November’s GDP data was swift: “For a government that has said growth is its top priority, this is not great news,” said HSBC. Analysts at Deutsche Bank also warned of “stagnation,” rather than real momentum, in the second half of 2024.
Hopes remain pinned on a combination of slightly softer interest rates, improved consumer sentiment, and government investment in 2025 to usher in a more robust recovery. Yet the UK’s persistent growth woes — now Labour’s to fix — hang in the balance.
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UK economy struggles to gain momentum as GDP growth disappoints at 0.1%