The UK economy saw a surprise uptick in the final quarter of 2024, providing a boost to Chancellor Rachel Reeves after months of economic stagnation.
Official data from the Office for National Statistics (ONS) revealed that gross domestic product (GDP) grew by 0.1% between October and December, exceeding forecasts from City economists and the Bank of England, who had anticipated a 0.1% decline.
The unexpected growth offers a degree of relief to the Labour government following concerns that Reeves’ £40bn tax-raising October budget had weakened business and consumer confidence.
The latest economic snapshot indicates a recovery driven by strength in the services sector, particularly in December, when GDP expanded by 0.4%, outperforming economists’ expectations of 0.1% growth.
Liz McKeown, director of economic statistics at the ONS, noted the improvement, stating: “The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year.” However, she added that GDP per head declined slightly over the quarter.
The data highlighted key contributors to December’s growth, including a strong performance in wholesale, film distribution, and hospitality sectors, as well as increased manufacturing output in machinery and pharmaceuticals. However, these gains were partially offset by weaker results in computer programming, publishing, and car sales.
Mixed Performance Across Sectors
The broader economic picture remains uneven. Business-facing services experienced a 0.2% increase in output while consumer-facing services edged up by 0.1%. The construction sector expanded by 0.5%, but the production sector, which includes manufacturing and energy, contracted for a fifth consecutive quarter, shrinking by 0.8%.
Economic uncertainty persisted following the October budget, with business surveys indicating slowed hiring and weaker private-sector activity. Retailers also reported lackluster Christmas sales on the high street, reflecting subdued consumer spending.
Despite the GDP growth, Reeves acknowledged that more progress was needed.
“The growth numbers have come in higher than many expected, but I’m still not satisfied with the level of growth that our economy is achieving. That’s why I am determined to go further and faster in delivering the economic growth and the improvements in living standards that our country deserves.”
Rachel Reeves
The GDP figures have reignited political debate over the government’s economic strategy. Shadow Chancellor Mel Stride criticized Reeves’ approach, arguing that her policies were stifling growth.
“The chancellor promised the fastest growing economy in the G7, but her budget is killing growth. Working people and businesses are already paying for her choices with ever-rocketing taxes, hundreds of thousands of job cuts, and business confidence plummeting. It does not need to be this way.”
Mel Stride
Meanwhile, business groups expressed cautious optimism about the economy’s resilience. Ben Jones, lead economist at the Confederation of British Industry, described the December rebound as encouraging but noted that overall growth remained sluggish. “The data supports our view that the loss of momentum in the second half of last year will prove to be a soft patch for the economy rather than a slide back into stagnation,” he said.
Last week, the Bank of England revised its economic forecasts downward, warning that inflationary pressures could weigh on households. The central bank responded by cutting interest rates from 4.75% to 4.5%, a move aimed at stimulating economic activity.
Financial markets remained steady following the GDP release, with investors maintaining expectations for further rate cuts. Analysts predict at least two more reductions before the end of 2025.
The pound reacted positively to the data, hitting a one-week high by rising more than half a cent against the dollar, trading just above $1.25. The UK currency had already been gaining strength earlier in the day as markets welcomed signs of progress in peace negotiations between Ukraine and Russia.
The coming months will be crucial for Britain’s economic trajectory, as policymakers balance fiscal responsibility with measures to drive sustained growth.
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