UK economy: Only three sectors report growth as Reeves’ woes deepen
Just three of the UK’s 14 sectors reported higher demand in December, a survey has found, in another sign of the troubles facing Rachel Reeves as she looks to kickstart the economy this year.
Software services, real estate and financial services were the only sectors to report growth last month, Lloyds Bank’s sector tracker suggested.
This meant the number of sectors seeing higher output was at its lowest level since September 2023.
The survey adds to a growing body of data which suggests the UK economy has essentially been stagnant since Labour took office last summer.
Figures published last week showed that the economy grew just 0.1 per cent in November, below expectations, while December saw a sharp fall in retail sales volumes.
While growth is slowing, fears about higher costs are also rising up the agenda as businesses look to offset a rise in costs, in part brought by Reeves’ tax hiking Budget in the Autumn. The survey showed that the number of firms facing lower activity levels due to inflation rose to a 26-month high in December.
Higher wages, price increases from suppliers and more expensive IT software were all contributory factors, the survey suggested, although the labour-intensive hospitality sector was the worst hit.
But firms hiked prices at a slower pace than their own costs were increasing, suggesting that the impact on inflation in the economy as a whole might be less acute.
“Faced with continued cost pressures, our data suggests that firms are taking decisions to reduce operating expenses in order to protect their margins,” Nikesh Sawjani, senior UK economist at Lloyds, said.
“This could help businesses limit the degree to which they may need to raise prices in the face of fragile demand, allowing them to retain customers rather than seek increased volumes,” he said.
Many economists think inflation will pick up to around three per cent in April thanks to a combination of higher energy prices, weaker sterling and the impact of the Budget.