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The UK economic system grew 0.1 per cent in November, undershooting analysts’ expectations, as chancellor Rachel Reeves comes below rising 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 worth pressures — contributed to a pointy rise in borrowing prices firstly of the 12 months.
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,” stated Suren Thiru, economics director at 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 growth, the primary since August, was led by the dominant providers 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 growth within the earlier quarter. Progress was 0.7 per cent between January and March final 12 months.
Following the discharge of the info on Thursday, Reeves stated: “I’m decided to go additional and sooner to kick-start financial progress, which is the primary precedence in our Plan for Change.”
The GDP figures comply with 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 buyers elevated bets on how far the Financial institution of England will reduce rates of interest this 12 months.
The BoE left rates of interest unchanged at 4.75 per cent final month after slicing borrowing prices twice in 2024. Markets largely count on that the financial institution will reduce the coverage price by a quarter-point in February.
In early buying and selling on Thursday, gilts held on to features from Wednesday’s rally, with the 10-year yield little modified at 4.74 per cent. Merchants have priced in at the least two quarter-point price cuts this 12 months from the BoE, in line with ranges implied by the swaps market.
Sterling, which has fallen greater than 2 per cent in opposition to the greenback this 12 months, was flat at $1.220 following the discharge of the info.
Barret Kupelian, chief economist on the consultancy PwC, stated: “Given the most recent inflation studying yesterday, weaker than anticipated progress might assist pave the best way for sooner price cuts by the Financial institution of England.”
In December, the Financial institution of England stated it anticipated no progress within the remaining three months of the 12 months, down from a 0.3 per cent growth 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 offered an “more and more gloomy outlook for 2025”, as he known as for the BoE to make a number of price cuts this 12 months.
Specialists polled by the Monetary Occasions anticipated the UK economic system to outperform France and Germany, however warned that Reeves’ plans to extend employers’ nationwide insurance coverage contributions might harm the labour market and wider economic system. The chancellor introduced the rise in her October Funds however it’ll solely take impact in April.
Simon Pittaway, senior economist on the think-tank Decision Basis, stated the UK had been “a progress rollercoaster”, with a recession in late 2023 adopted by a bounceback in early 2024. “However its longer-term file is one in all financial stagnation, and that’s the place Britain dangers returning to.”