UK economy grows 0.1%, falls short of forecasts

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Britain's economy grew 0.1% in November, below analysts' expectations, as Prime Minister Rachel Reeves comes under increasing pressure to restore confidence in the government's fiscal plans.

The monthly figures were lower than the 0.2% growth forecast by economists polled by Reuters, and data released by the Office for National Statistics on Thursday showed contractions of 0.1% in both October and September.

Thursday's data will not allay concerns about the performance of the UK economy after concerns about stagflation, accompanied by sluggish growth and persistent price pressures, causing borrowing costs to rise sharply at the start of the year.

Labor came to power last July on a pledge to put growth at the heart of its agenda, but Reeves faced criticism that the October budget would cost businesses $40 billion in tax increases.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the disappointingly slow recovery of the British economy was unlikely to ease stagflation concerns. 4th quarter.

For the first time since August, November's expansion was led by the primary services sector, which grew 0.1%, offsetting a 0.3% contraction in manufacturing. The construction sector grew 0.4% in November, following a 0.3% contraction in October. The economy in November was still 0.1% smaller than in March 2024.

In the three months to November, the economy showed no growth compared to the previous three months. Production in the third quarter also stagnated, showing a sharp slowdown compared to the 0.4% increase in the previous quarter. The growth rate from January to March last year was 0.7%.

After the data was released on Thursday, Reeves said: I am determined to go further and faster to jump-start economic growth.

But shadow chancellor Mel Stride accused Reeves of burying his head in the sand and failing to take responsibility for the crisis in Downing Street.

GDP figures showed inflation unexpectedly fell in December to 2.5% from 2.6% the previous month, according to official data released on Wednesday.

The inflation data sparked a sharp rebound in gold bonds on Wednesday as investors increased bets on how much the Bank of England will cut interest rates this year, pulling yields lower from 16-year highs this month.

The BoE left interest rates unchanged at 4.75% last month after cutting borrowing costs twice for 2024. Markets expect the central bank to cut interest rates by a quarter of a point in February.

In Thursday morning trading, gilts pushed the 10-year yield down 0.03 percentage points to 4.71%, boosted by Wednesday's rally. Indications in the swaps market suggest that traders have priced in at least a second quarter point interest rate cut from the BoE this year.

The pound, which has fallen more than 2% against the dollar this year, remained flat at $1.220 after the data was released.

“Given yesterday’s latest inflation figures, weaker-than-expected growth could help pave the way for faster interest rate cuts by the Bank of England,” said Barrett Koufelian, chief economist at consultancy PwC.

In December, the BoE said it expected no growth in the last three months of the year, lower than the 0.3% growth it had forecast in November.

Alan Taylor, external member of the Monetary Policy Committee, called on Wednesday for the BoE to cut interest rates several times this year, warning that the most recent forward-looking activity figures showed the outlook for 2025 was increasingly bleak.

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According to a poll conducted by the Financial Times late last year, experts predicted that the British economy would surpass that of France and Germany by 2025. But they warned Reeves' plans to increase employers' national insurance contributions could harm the labor market and the wider economy. The Prime Minister announced a budget increase in October, but it will only come into effect in April.

Simon Pittaway, chief economist at the Resolution Foundation think tank, said the UK had been a roller coaster of growth, with a recession in late 2023 followed by a rebound in early 2024. But the UK's long-term record is one of recession, and this is where the country risks returning.

Additional reporting by Ian Smith

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