GDP grows 0.1 per cent as UK economy skirts recession
Chancellor Rachel Reeves received a small boost after the economy unexpectedly grew at the end of last year, ensuring the UK does not face an imminent recession.
Output expanded 0.1 per cent in the final three months of the year, according to the Office for National Statistics (ONS), after GDP rose 0.4 per cent in the month of December.
Economists had expected to see the economy shrink 0.1 per cent with month-on-month growth anticipated to be just 0.1 per cent in December.
“The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year,” ONS Director of Economic Statistics Liz McKeown said.
Output in the UK’s all-important services sector grew 0.2 per cent across the quarter while construction activity rose 0.5 per cent. This offset a 0.8 per cent fall in production.
December’s figures were boosted by strong performances from pubs and bars as well as the “often-erratic” pharmaceutical sector, McKeown said.
“In a surprise twist, the UK economy beat expectations to end the year on a positive momentum,” Sanjay Raja, chief UK economist at Deutsche Bank said.
Across the year as a whole, GDP is estimated to have grown by 0.9 per cent, up from 0.1 per cent in a recession hit 2023.
However, GDP per head – which is a better proxy for living standards – fell 0.1 per cent across the final quarter, having dropped 0.3 per cent in the third quarter.
“Better than expected growth at the end of last year means that Britain has avoided another technical recession. But it remains mired in a living standards downturn, with GDP per person still below pre-pandemic levels,” Simon Pittaway, senior economist at the Resolution Foundation, said.
Boost for Reeves?
The figures will be a minor boost for Reeves as she seeks to turn the page on a torrid first six months in power.
The government has put economic growth at the heart of its agenda, but the economy has been more or less stagnant since spring, partly due to Reeves’ policies.
“It’s clear that a lot of the weakness is due to the rise in business taxes announced in October’s Budget as well as soft demand overseas,” Paul Dales, chief UK economist at Capital Economics said.
Measures of corporate and consumer confidence plummeted in the wake of October’s Budget, in which she announced £40bn worth of tax hikes.
Surveys indicate that firms are cutting jobs at the fastest rate since the pandemic in anticipation of the extra payroll costs, which will filter through in April.
The Bank of England halved its forecasts for 2025 last week, pencilling in growth of 0.7 per cent compared to a previous estimate of 1.5 per cent.
The Office for Budget Responsibility (OBR) is expected to cut its own forecasts next month, which will likely force Reeves to cut spending with further tax hikes later in the year also a possibility.
“Working people and businesses are already paying for her choices with ever rocketing taxes, hundreds of thousands of job cuts and business confidence plummeting,” Shadow Chancellor Mel Stride said.
Although the figures ensure the UK does not face an immediate recession, economists were divided about the direction of growth in the coming months.
“With business sentiment on the floor and employment declining, it’s hard to see private sector activity improving much in Q1 or Q2,” Dales said.
But Ben Jones, lead economist at the Confederation of British Industry, said the data supports the view that the slowdown in growth will be a “soft patch…rather than a slide back into stagnation”.
Over the past few weeks Reeves has announced a range of measures – such as a third runway at Heathrow and changes to the planning regime – to try and reinvigorate the economy.
“For too long, politicians have accepted an economy that has failed working people. I won’t,” Reeves said in response to the figures.
“That is why 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.