Unlock the Editor’s Digest at no cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
The UK financial system unexpectedly grew by 0.1 per cent within the fourth quarter, in a modest increase for Labour because it seeks to fulfil its pledges to re-energise the financial system.
The GDP determine for the ultimate three months of the yr from the Workplace for Nationwide Statistics marked a rise on the zero development within the quarter that led to September, however remains to be in step with an financial system that’s struggling to realize momentum.
Economists had forecast a 0.1 per cent fourth-quarter contraction, in response to a ballot from Reuters.
The figures have been lifted by a robust efficiency in December, when GDP development expanded 0.4 per cent from the earlier month, pushed by the UK’s dominant companies sector.
The pound strengthened after the information launch, up 0.5 per cent towards the greenback at $1.251.
Chancellor Rachel Reeves has vowed to make development the federal government’s chief mission, throwing her help behind tasks together with a 3rd runway at London’s Heathrow airport and transport hyperlinks between Oxford and Cambridge.
However the financial system has repeatedly dissatisfied since Labour took energy, largely stagnating within the second half of final yr. Actual GDP per head is estimated to have fallen 0.1 per cent within the fourth quarter, the ONS mentioned.
The most recent knowledge capped a “disappointing yr for development”, mentioned Hailey Low, an economist on the Nationwide Institute of Financial and Social Analysis.
“Low enterprise and client confidence recommend that 2025 begins on shaky floor, with weak funding and cautious client spending hindering momentum,” she added.
Over the entire of 2024, the financial system expanded by 0.9 per cent, the ONS mentioned, a modest enchancment on enlargement of 0.4 per cent the earlier yr.
Nonetheless, the primary half of the yr was stronger than the second, and the annual determine fell in need of predictions in October by the Workplace for Finances Duty, the UK fiscal watchdog.
Annual development was additionally far under that recorded within the US, the place GDP expanded by 2.8 per cent in 2024.
Reeves is braced for a tricky fiscal outlook from the OBR subsequent month, partially due to the poor efficiency of the financial system.
The watchdog is anticipated to chop its development forecasts within the upcoming Spring Assertion, hitting tax revenues and including to the fiscal pressures going through the chancellor.
Final week, the OBR advised Reeves that the headroom she beforehand had towards her key finances rule had been worn out by components together with poor financial knowledge.
Economists mentioned the comparatively weak fourth-quarter efficiency might partly mirror downbeat company sentiment following Reeves’ first Finances, during which she introduced greater employer nationwide insurance coverage contributions.
Thursday’s figures confirmed a 3.2 per cent drop in enterprise funding within the fourth quarter, in addition to a drag from weak commerce efficiency.
The modest quarterly enlargement was propelled by greater companies and development exercise, whereas industrial manufacturing fell for the fifth consecutive quarter.
Economists mentioned the newest figures level to a subdued image for 2025. “With enterprise sentiment on the ground and employment declining, it’s onerous to see non-public sector exercise bettering a lot within the first or second quarters,” mentioned Paul Dales at Capital Economics. “The financial system is unlikely to do greater than transfer sideways over the following six months.”
Responding to Thursday’s GDP figures, Reeves mentioned: “For too lengthy, politicians have accepted an financial system that has failed working individuals. I gained’t. After 14 years of flatlining residing requirements, we’re going additional and sooner by our Plan for Change to place more cash in individuals’s pockets.”
Mel Stride, the shadow chancellor, mentioned: “The chancellor promised the quickest rising financial system within the G7, however her finances is killing development.”
James Smith of ING mentioned that whereas the ONS has forecast 2 per cent development this yr, the UK financial system might broaden at simply half that tempo.
“The lacklustre finish to 2024 will solely cement the lack of fiscal headroom the Treasury should now grapple with,” he mentioned.
Further reporting by Ian Smith
