According to the Office for National Statistics (ONS), the British economy grew by just 0.1 percent in November, below forecasts of 0.2 percent. The subdued figure, released on Friday, underlines the continued weakness of Britain’s recovery as the new Labor government grapples with stubborn inflation, tepid consumer confidence and looming global trade risks.
The ONS data showed a slight rebound after two months of 0.1 percent contraction, but analysts in the city had hoped for stronger growth. The disappointing figure led to a modest decline in sterling, which fell 0.10 percent against the dollar to $1.22 and 0.25 percent against the euro to €1.18.
Despite the meager GDP figures, equity markets were upbeat. The FTSE 100 closed 1.1 percent, or 90.77 points, higher at 8,391.90, while the FTSE 250 also rose 1 percent, up 194.08 points to 20,527.70. Government bond yields remained flat, reflecting a fragile balance between investor caution and optimism, fueled by surprisingly lower inflation data released earlier this week.
Rachel Reeves, the chancellor, acknowledged that while the economy has made progress, more substantial progress “will take time.” The latest quarterly data from the ONS confirms zero growth in the period to November, further highlighting the uphill battle the government faces.
Business confidence remains wary after Labour’s October budget, which increased national insurance contributions by £25 billion and increased government spending by £70 billion. Many companies warn this could force them to cut jobs and raise prices as they adjust to new tax obligations.
Reeves defended her plans, insisting she has put an end to the “instability” caused by the Conservatives: “This new government has come with a determination, a No. 1 mission, to grow the economy. That takes time,” she said. She will meet regulators to push for a stronger growth-oriented focus ahead of the spring statement and updated forecasts from the Office for Budget Responsibility (OBR) on March 26.
The upcoming inauguration of Donald Trump as US president has raised concerns about a possible trade war. Jonathan Reynolds, the business secretary, expressed concern about “the possibility of a tariff war between friends,” specifically pointing to Trump’s promise of at least 10 percent on imports to the US.
Reeves is also under pressure to keep public finances under control. With borrowing costs rising in the market, speculation is mounting that the Chancellor will be forced to raise taxes or rein in spending further. For now, she insists the government remains committed to “eliminating waste in public spending” while prioritizing growth.
The unexpected fall in ONS inflation to 2.5 percent in December has fueled optimism that the Bank of England could start cutting interest rates, which currently stand at 4.75 percent. Thomas Pugh, economist at RSM UK, predicted a quarter-point rate cut in February as “a sure bet”.
A lower interest rate could provide a reprieve to borrowers who have had to deal with rapidly rising mortgage costs over the past year. Alan Taylor, the newest member of the Bank’s Monetary Policy Committee, indicated that four or five rate cuts could be on the table by 2025, a signal that the Bank is now more focused on stimulating an economy at risk of long-term stagnation.
Modest growth of 0.1 percent in the services sector in November contrasted with a 0.4 percent increase in construction and a 0.4 percent decline in manufacturing. While construction was stimulated by commercial developments, production and oil and gas extraction continued to slump. Analysts warned that these figures would hardly change the sense of a stalled economy heading into 2025.
The OBR forecasts GDP growth of 2 percent for 2025, although some city experts say this is too optimistic, especially if there is a potential trade war, tax hikes or another global downturn.
For Reeves, achieving a sustainable recovery is proving to be an enormous challenge. Eight months into power, the Labor chancellor is under pressure to show tangible results. The city’s assessment of the November GDP data was quick: “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 “stagnation” rather than real momentum in the second half of 2024.
Hopes remain pinned on a combination of slightly softer interest rates, improved consumer confidence and government investment in 2025 to usher in a more robust recovery. Yet Britain’s ongoing growth problems – which must now be solved by Labor – hang in the balance.