Analysts highlights that challenges persist as economy registers modest expansion
The UK economy showed signs of life in November, expanding by a modest 0.1% after two consecutive months of contraction, though the growth fell short of analysts’ expectations of 0.2%. The tepid recovery comes as the Labour government faces mounting pressure over its economic policies and planned tax increases, a report from BBC highlighted.
According to the Office for National Statistics (ONS), the slight uptick was primarily driven by activity in pubs, restaurants, and the construction sector. However, the broader economic picture remains concerning, with the economy showing no growth in the three months to November and having expanded only twice in the five months since Labour took office.
“The UK economy spluttered back to life in November,” said Isaac Stell, investment manager at Wealth Club. “The small amount of growth achieved will likely take further heat off a chancellor that has been under significant amounts of pressure over the last few weeks.”
Breaking down the sectors, services output – often described as the engine room of UK economic growth – grew by 0.1%, while construction output increased by 0.4%. However, production output declined by 0.4%, with ONS director Liz McKeown noting continued decline across several manufacturing industries and oil and gas extraction companies.
Government faces pressure to boost growth
Chancellor Rachel Reeves, who has faced scrutiny following recent market turbulence that sent UK borrowing costs soaring, acknowledged the government needs to “do more to grow our economy.” According to the BBC, the chancellor is taking active steps, scheduling meetings with major regulatory bodies including Ofgem and the Competition and Markets Authority to discuss growth strategies.
The modest growth figures, combined with an unexpected dip in inflation in December, have fuelled speculation about potential interest rate cuts from the Bank of England. However, businesses are expressing concern about the impact of upcoming tax changes in April, including hikes in National Insurance rates and reduced business rates relief.
Adrian Haller, who runs the UK arm of Swiss manufacturer Bruderer, exemplified these concerns, stating that the recent Budget “put a dampener” on business activity. “Everybody seems to have put the handbrake on,” he said, urging the government to recognise that “they’ve done too many changes too quickly.”
Looking ahead, economists remain cautious about the UK’s growth prospects. Rob Wood, chief UK economist at Pantheon Macroeconomics, attributed the economic stagnation to tax hikes announced in the October Budget and global uncertainty surrounding potential US trade tariffs under Donald Trump. However, he suggested a more optimistic outlook for 2025, noting that Reeves’ strategy of “recycling increased taxes into even more spending” could provide an economic boost.
Prime Minister Sir Keir Starmer characterised the November growth as a “step in the right direction” while acknowledging that economic recovery would “take time.” With the pound falling to $1.221 following the data release, all eyes remain on the government’s ability to navigate these challenging economic waters while maintaining its commitment to growth and stability.
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