UK Economy Grows at Modest 0.1% in November; Below Expectations
London, Thursday, 16 January 2025.
The UK economy expanded by 0.1% in November 2024, below the forecasted 0.2%, amid post-Brexit challenges and upcoming tax hikes, potentially affecting global markets.
Weak Growth Across Key Sectors
The latest Office for National Statistics (ONS) data reveals that while the services sector contributed positively to growth [1], production output fell by 0.4%, reaching its lowest level since May 2020 [6]. Construction showed some resilience with a 0.4% increase, primarily driven by new commercial developments and non-housing repair and maintenance work [6]. The economy has effectively flatlined over the three months to November [1][2], with no growth recorded during this period, raising concerns about the UK’s economic trajectory.
Market Response and Inflation Context
Financial markets reacted promptly to the disappointing growth figures, with the British pound declining 0.2% to $1.2214 [2]. This economic performance comes against a backdrop of cooling inflation, which decreased to 2.5% in December 2024 [2][7]. The combination of weak growth and moderating inflation has strengthened expectations for monetary policy adjustment, with markets now indicating an 83% probability of the Bank of England reducing interest rates from 4.75% to 4.50% at their February 2025 meeting [4].
Government Response and Future Challenges
Chancellor Rachel Reeves has acknowledged the need for stronger economic growth, pledging to accelerate efforts to stimulate the economy [1]. The government faces significant challenges, particularly with £40 billion in tax increases scheduled to take effect in April 2025 [1]. In response to these challenges, Reeves has scheduled crucial meetings with major regulators, including Ofgem and the Competition and Markets Authority, to discuss strategies for economic growth [1][4].
Trade and Business Outlook
The economic landscape is further complicated by a widening trade deficit, which increased by £3.8 billion to £10.8 billion in the three months to November 2024 [6]. Business sentiment remains cautious, with CBI’s lead economist Ben Jones noting a prevailing mood of caution among UK businesses [1]. The situation is particularly challenging for manufacturing, which continues to show decline [1], highlighting the broader structural challenges facing the UK economy.