The UK economy grew by just 0.1 per cent in November, below expectations of 0.2 per cent, according to the Office for National Statistics (ONS). The weak figure, announced on Friday, highlights the continuing weakness in Britain’s recovery, as the new Labor government faces stubborn inflation, tepid consumer confidence, and looming global trade risks.
Office for National Statistics data revealed a slight rise after two months of a 0.1 per cent contraction, but analysts in the City were hoping for stronger growth. This disappointing figure led to a modest decline in the pound sterling, which fell by 0.10 percent against the dollar to $1.22 and by 0.25 percent against the euro to €1.18.
Despite the lackluster GDP numbers, stock 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 up 1 per cent, up 194.08 points to 20,527.70. Government bond yields remained steady, reflecting the fragile balance between investor caution and optimism stemming from surprisingly low inflation data released earlier this week.
Rachel Reeves, the finance minister, acknowledged that while the economy was slowly moving forward, more substantive progress “will take time”. The latest three-month data from the Office for National Statistics confirms zero growth in the period to November, further highlighting the uphill battle facing the government.
Business sentiment remains cautious following Labour’s October budget, which saw National Insurance contributions increased by £25 billion and government spending increased by £70 billion. Many companies warn that this could force them to cut jobs and raise prices as they adapt to new tax obligations.
Reeves defended her plans, insisting they had ended the “instability” created by the Conservatives: “This new government has come in with a determination, a mission number one, which is to grow the economy. “This takes time,” she said. She will meet with organizers to urge the focus of the strongest supporter For growth, ahead of the spring statement and updated forecasts from the Office for Budget Responsibility (OBR) on 26 March.
The inauguration of Donald Trump as President of the United States has raised concerns about a possible trade war. Jonathan Reynolds, the business secretary, expressed unease about “the potential for a tariff war between friends,” specifically pointing to Trump’s pledge of at least 10 percent on imports into the United States.
Reeves is also facing pressure to keep public finances under control. As market borrowing costs rise, speculation is growing that the Finance Minister may have to either raise taxes or rein in spending further. For now, it stresses that the government remains committed to “eliminating waste in public spending” while prioritizing growth.
The Office for National Statistics’ unexpected fall in the inflation rate in December to 2.5 per cent has sparked optimism that the Bank of England may start cutting interest rates, which currently stand at 4.75 per cent. Thomas Pugh, an economist at RSM UK, predicted a quarter-point rate cut in February as a “sure bet”.
Lower rates may provide a respite for borrowers who have faced rapidly rising mortgage costs over the past year. Alan Taylor, the bank’s newest member of the monetary policy committee, indicated that four or five interest rate cuts could be on the table in 2025, a sign that the bank is now more focused on stimulating an economy that is at risk of a prolonged recession.
The modest 0.1 percent growth in services in November contrasted with a 0.4 percent increase in construction and a 0.4 percent decline in output. While construction was supported by commercial developments, manufacturing and oil and gas extraction continued to decline. Analysts cautioned that these numbers do not change the sense of the stalled economy until 2025.
The Office for Budget Responsibility forecasts GDP growth of 2 per cent for 2025, although some City experts consider this overly optimistic, especially if a potential trade war, tax rises or other global downturn erupts.
For Reeves, stimulating a sustainable recovery is a huge challenge. With eight months in office, the Labor chancellor is under pressure to show tangible results. The City’s judgment on November’s GDP data was swift: “For a government that has said growth is its top priority, this is not great news,” HSBC said. Analysts at Deutsche Bank also warned of a “stagnation” rather than real momentum in the second half of 2024.
Hopes remain on a combination of slightly softer interest rates, improving consumer sentiment, and government investment in 2025 to usher in a stronger recovery. However, the UK’s persistent growth problems – which Labor must now fix – hang in the balance.
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