Economy grows 0.1 per cent in fourth quarter, defying expectations

THE UK economy expanded by 0.1 per cent in the final quarter of 2024, contrary to forecasts of a contraction, according to official data released on Thursday.

The growth, supported by a stronger-than-expected 0.4 per cent rise in December, offers some relief to chancellor Rachel Reeves as she navigates broader economic challenges.

Economists polled by Reuters had predicted a 0.1 per cent contraction in the quarter. Over the full year, GDP grew by 0.9 per cent, up from 0.4 per cent in 2023. However, when adjusted for population growth, output per capita declined by 0.1 per cent, reflecting continued pressure on living standards and public finances.

Sterling rose by as much as a third of a cent against the US dollar following the release of the data.

"A pleasant surprise, but we're not out of the woods yet. Beneath the surface of these latest figures, domestic demand via consumption and business investment was weaker than expected," said Scott Gardner, an investment strategist at Nutmeg, a wealth manager owned by JP Morgan.

December’s growth was driven by the services sector, including wholesalers, film distributors, pubs, and bars, along with machinery and pharmaceutical manufacturers, the Office for National Statistics said.

However, the data also showed that growth relied on government spending and stockpiling by businesses, while business investment fell sharply by 3.2 per cent and household spending remained flat.

The drop in investment was largely due to a decline in transport equipment, a volatile component that had been strong in the previous quarter.Economic outlook

Last week, the Bank of England cut its 2025 growth forecast to 0.75 per cent, while the National Institute of Economic and Social Research predicted a higher growth rate of 1.5 per cent.

The economy recorded moderate growth in the first half of 2024 as it emerged from a shallow recession in late 2023. However, growth stalled in the second half, with the third quarter showing no expansion.

Businesses have raised concerns about a £25 billion increase in employment taxes introduced in Labour’s first budget on 30 October, warning of potential job cuts and price hikes.

Other economic pressures include weak demand in Europe, higher energy costs, and potential disruptions to global trade due to US tariffs under president Donald Trump.

Reeves and prime minister Keir Starmer have pledged to reduce planning delays and regulatory barriers to support investment.

After the latest data release, Reeves reiterated the government’s commitment to economic growth.

"We are taking on the blockers to get Britain building again, investing in our roads, rail, and energy infrastructure, and removing the barriers that get in the way of businesses who want to expand," she said.

The Conservative opposition highlighted the fall in GDP per capita, arguing that Reeves was overseeing a decline in living standards, even if the economy avoided a technical recession.

With borrowing costs rising and economic growth subdued, Reeves may face pressure to announce spending cuts next month to stay within her fiscal targets when government forecasters update their projections.

(With inputs from Reuters)