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The UK economic system grew 0.1 per cent in November, undershooting analysts’ expectations, as chancellor Rachel Reeves comes underneath rising strain to rebuild confidence within the authorities’s fiscal plans.
The month-to-month determine was beneath the 0.2 per cent development forecast by economists polled by Reuters and follows a 0.1 per cent contraction in each October and September, based on information printed on Thursday by the Workplace for Nationwide Statistics.
Thursday’s information won’t dispel considerations over the efficiency of the UK economy after fears of stagflation — when sluggish development is accompanied by persistent value pressures — contributed to a pointy rise in borrowing prices initially of the yr.
Labour swept to energy final July with a promise to place development 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 development for the UK economic system is unlikely to ease stagflation considerations,” mentioned 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 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 development 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. Development 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 sooner to kick-start financial development.”
Mel Stride, the shadow chancellor, accused Reeves of “burying her head within the sand” and failing to take duty for a “disaster made in Downing Avenue”.
The GDP figures comply with official information launched on Wednesday displaying an sudden 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 yr.
The BoE left rates of interest unchanged at 4.75 per cent final month after slicing borrowing prices twice in 2024. Markets largely anticipate 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 beneficial properties from Wednesday’s rally, with the 10-year yield little modified at 4.74 per cent. Merchants have priced in no less than two quarter-point price cuts this yr from the BoE, based on 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 on the consultancy PwC, mentioned: “Given the newest inflation studying yesterday, weaker than anticipated development might assist pave the way in which for sooner price cuts by the Financial institution of England.”
In December, the Financial institution of England mentioned it anticipated no development within the last three months of the yr, 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 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.
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 would solely take impact in April.
Simon Pittaway, senior economist on the think-tank Decision Basis, mentioned the UK had been “a development rollercoaster”, with a recession in late 2023 adopted by a bounceback in early 2024. “However its longer-term file is one among financial stagnation, and that’s the place Britain dangers returning to.”
Extra reporting by Ian Smith
