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The UK economy grew 0.1 percent in November, missing analysts' expectations, as Chancellor Rachel Reeves comes under increasing pressure to restore confidence in the government's fiscal plans.
The monthly figure was below the 0.2 percent rise expected by economists polled by Reuters, and follows declines of 0.1 percent in both October and September, according to data released by the Office for National Statistics on Thursday.
Thursday's data won't dispel performance concerns UK economy after fears of stagflation – where sluggish growth is accompanied by lingering price pressures – contributed to a sharp rise in borrowing costs at the start of the year.
Labor swept to power last July on a promise to put growth at the heart of its agenda, but Reeves faced criticism over her October Budget, which saw businesses bear the brunt of a £40bn tax hike.
“This disappointingly modest return to growth in the UK economy is unlikely to ease fears of stagflation,” said Suren Thiru, economic director of the Institute of Chartered Accountants in England and Wales, adding that “it is unlikely to trigger a significant improvement. economic activity in the fourth quarter'.
November's expansion, the first since August, was driven by the dominant services sector, which rose 0.1 percent and offset a 0.3 percent decline in manufacturing. Construction grew by 0.4 percent in November after a 0.3 percent decline in October. In November, the economy was still 0.1 percent smaller than in March 2024.
In the three months to November, the economy saw no growth compared to the previous three months. Output also stagnated in the third quarter, marking a sharp slowdown from the 0.4% expansion in the previous quarter. Between January and March last year, growth was 0.7 percent.
After Thursday's release of the figures, Reeves said: “I am committed to going further and faster to jump-start economic growth, which is the number one priority in our Plan for Change.”
The GDP data follows official data released on Wednesday showing inflation unexpectedly fell to 2.5 percent in December from 2.6 percent the previous month.
Inflation data sparked a sharp recovery on Wednesday, pushing yields down from 16-year highs hit this month as investors raised bets on how far the Bank of England will cut interest rates this year.
The BoE left interest rates unchanged at 4.75 percent last month after cutting borrowing costs twice in 2024. Markets mostly expect the bank to cut the key interest rate by a quarter of a percentage point in February.
In early trading Thursday, gilts were holding on to gains from Wednesday's rally, with the 10-year yield little changed at 4.73 percent. Traders priced in at least two quarter percent rate cuts from the BoE, according to levels implied by the swaps market.
Sterling, which has fallen more than 2 percent against the dollar this year, was little changed at $1.221 after the data was released.
Barret Kupelian, chief economist at consultancy PwC, said: “Given yesterday's latest inflation data, weaker-than-expected growth could help pave the way for faster rate cuts by the Bank of England.
In December, the Bank of England said it expected no growth in the final three months of the year, down from the 0.3% expansion it had forecast in November.
Alan Taylor, an external member of the Monetary Policy Committee, warned on Wednesday that the latest forward-looking indicators of activity presented an “increasingly gloomy outlook for 2025” as he called on the BoE to cut rates several times this year.
Experts interviewed by the Financial Times expected Britain's economy to outperform France and Germany, but warned that Reeves' plans to increase employers' National Insurance contributions could damage the labor market and the wider economy. The chancellor has announced an increase to her October budget, but this will not come into effect until April.
Simon Pittaway, chief economist at the Resolution Foundation think tank, said the UK had been a “growth rollercoaster”, with a recession in late 2023 followed by a rebound in early 2024. “But the longer-term record is one of economic stagnation. and that is where Britain risks returning.”
