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The UK economic system grew 0.1 per cent in November, undershooting analysts’ expectations, as chancellor Rachel Reeves comes below growing stress to rebuild confidence within the authorities’s fiscal plans.
The month-to-month determine was under the 0.2 per cent progress forecast by economists polled by Reuters and follows a 0.1 per cent contraction in each October and September, in line with information printed on Thursday by the Workplace for Nationwide Statistics.
Thursday’s information won’t dispel considerations over the efficiency of the UK economic system after fears of stagflation — when sluggish progress is accompanied by persistent value pressures — contributed to a pointy rise in borrowing prices at the beginning of the yr.
Labour swept to energy final July with a promise to place progress on the coronary heart of its agenda, however Reeves has confronted criticism over her October Funds, which left companies bearing the brunt of £40bn of tax will increase.
“This disappointingly modest return to progress for the UK economic system is unlikely to ease stagflation considerations,” mentioned Suren Thiru, economics director on the Institute of Chartered Accountants in England and Wales, including that it was “unlikely to have sparked a extra notable enchancment in financial exercise throughout the fourth quarter”.
November’s enlargement, the primary since August, was led by the dominant companies sector, which grew 0.1 per cent and offset a 0.3 per cent contraction in manufacturing. The development sector grew 0.4 per cent in November following a 0.3 per cent contraction in October. In November, the economic system was nonetheless 0.1 per cent smaller than in March 2024.
Within the three months to November, the economic system registered no progress in contrast with the earlier three months. Output was additionally flat within the third quarter, which marked a pointy slowdown from the 0.4 per cent enlargement within the earlier quarter. Progress was 0.7 per cent between January and March final yr.
Following the discharge of the information on Thursday, Reeves mentioned: “I’m decided to go additional and quicker to kick-start financial progress.”
However Mel Stride, shadow chancellor, accused Reeves of “burying her head within the sand” and failing to take accountability for a “disaster made in Downing Avenue”.
The GDP figures observe official information launched on Wednesday displaying an surprising decline in inflation to 2.5 per cent in December from 2.6 per cent the earlier month.
The inflation information sparked a pointy rally in gilts on Wednesday, pushing yields down from the 16-year highs hit this month, as traders elevated bets on how far the Financial institution of England will minimize rates of interest this yr.
The BoE left rates of interest unchanged at 4.75 per cent final month after chopping borrowing prices twice in 2024. Markets largely count on that the central financial institution will minimize its benchmark price by a quarter-point in February.
In early buying and selling on Thursday, gilts added to positive aspects from Wednesday’s rally, pushing the 10-year yield down 0.03 share factors to 4.71 per cent. Merchants have priced in not less than two quarter-point price cuts this yr from the BoE, in line with ranges implied by the swaps market.
Sterling, which has fallen greater than 2 per cent towards the greenback this yr, was flat at $1.220 following the discharge of the information.
Barret Kupelian, chief economist at consultancy PwC, mentioned: “Given the most recent inflation studying yesterday, weaker than anticipated progress may assist pave the best way for quicker price cuts by the Financial institution of England.”
In December, the BoE mentioned it anticipated no progress within the ultimate three months of the yr, down from a 0.3 per cent enlargement it had forecast in November.
Alan Taylor, an exterior member of the Financial Coverage Committee, warned on Wednesday that the newest forward-looking exercise indicators introduced an “more and more gloomy outlook for 2025”, as he referred to as for the BoE to make a number of price cuts this yr.
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Consultants polled by the Monetary Instances on the finish of final yr anticipated the UK economic system to outperform France and Germany in 2025. However they warned that Reeves’ plans to extend employers’ nationwide insurance coverage contributions may damage the labour market and wider economic system. The chancellor introduced the rise in her October Funds however it is going to solely take impact in April.
Simon Pittaway, senior economist on the Decision Basis think-tank, mentioned the UK had been “a progress rollercoaster”, with a recession in late 2023 adopted by a bounceback in early 2024. “However its longer-term document is one among financial stagnation, and that’s the place Britain dangers returning to.”
Further reporting by Ian Smith
