UK economy grows at end of 2024 in surprise reprieve for Reeves

Britain registered unexpected growth at the end of 2024, a reprieve for the Labour government after a woeful run of economic indicators. Gross domestic product rose 0.1% in the fourth quarter, an acceleration from the flat performance in the third quarter, the Office for National Statistics said Thursday. It was better than the 0.1% fall in output expected by economists and the Bank of England. It came as output in December alone grew a faster-than-forecast 0.4%.

The figures provide Chancellor of the Exchequer Rachel Reeves some respite after a disappointing start to Labour’s ambitions to turbocharge growth. Signs of a small pick-up may brighten the mood in government ahead of crucial new forecasts from the Office for Budget Responsibility next month. The economy is now slightly larger than before Labour took office in July.

The pound extended gains after the data, rising 0.6% to $1.2517, the highest in over a week. The move, which was also supported by a broadly weaker dollar, extends sterling’s weekly advance to 0.9%.

The ONS said growth in December was driven by pubs and bars, which had a “strong month,” alongside wholesale, film distribution, manufacturing of machinery and the pharmaceutical industry. Computer programming, publishing and car sales were down.

When accounting for population increases, the picture was more disappointing, however. GDP per capita fell 0.1%, declining for a second consecutive quarter.

GDP grew just 0.9% in 2024 as a whole. The BOE expects the economy’s weakness to spill over into 2025, and last week halved its growth forecast for this year to 0.7%.

Also Read: Bank of England cuts rates to 4.5%, signals cautious approach ahead

The UK’s faltering performance is curbing Labour’s spending ambitions. Bloomberg reported on Tuesday that Office for Budget Responsibility projections delivered to Reeves last week suggest she is facing a small hole in her plans when it delivers its full forecasts on Mar. 26.

Labour has announced a blitz of decisions to improve the supply side of the economy since returning to power and signalled it is willing to take on controversial issues, such as approving a third runway at Heathrow Airport.

However, businesses have hit out at the first budget containing over £40 billion ($50 billion) of tax rises, which included a £26 billion hike in employers’ national insurance contributions that surveys suggest may trigger job losses.

The figures are also vital for the BOE, as its rate-setters weigh sticky inflation against a need to support the economy.

Last week they voted for the third interest-rate reduction of the current cutting cycle, though stuck by their guidance for a cautious easing of policy. Doves on the BOE committee are growing increasingly concerned that a growth slowdown requires bigger rate cuts.

Also Read: Will there be a global recession in 2025?