UK surprises with 0.1% growth in fourth quarter

London — Britain’s economy unexpectedly grew by 0.1% in the final quarter of last year, official figures showed on Thursday, offering some respite from a downbeat economic picture facing finance minister Rachel Reeves, though longer-term challenges remain.

Economists polled by Reuters had forecast that British GDP would shrink 0.1% in the period, but the quarter was lifted by stronger-than-expected growth of 0.4% in December.

During 2024, total GDP grew 0.9% after 0.4% growth in 2023.

But adjusted for a rising population, national output per capita fell 0.1% last year, highlighting ongoing pressure on living standards and public finances.

Sterling strengthened by as much as a third of a cent against the US dollar after the data. “A pleasant surprise, but we’re not out of the woods yet. Beneath the surface of these latest figures, domestic demand via consumption and business investment was weaker than expected,” said Scott Gardner, an investment strategist at Nutmeg, a wealth manager owned by JP Morgan.

December’s growth reflected a robust performance by Britain’s large services sector, with wholesalers, film distributors, pubs and bars doing well, as did machinery manufacturers and pharmaceuticals companies, the Office for National Statistics said.

However, the figures show growth also relied on government spending and a likely temporary build-up in companies’ inventories, while business investment dropped 3.2% on the quarter and household spending was flat.

The fall in business investment was driven by transport equipment, a volatile component which had been strong in the third quarter.

Last week the Bank of England halved its forecast for growth in 2025 to 0.75%, though other forecasters such as the National Institute of Economic and Social Research remain more upbeat with a 1.5% growth forecast.

Britain’s economy recorded moderate growth in the first half of 2024 as it emerged from a shallow recession in the latter half of 2023, but slowed in the second half, recording zero growth in the third quarter.

Businesses complained about a £25bn rise in employment taxes announced in the new Labour government’s first budget on October 30 and have said they plan to cut staff and raise prices in response.

Other headwinds include weak demand elsewhere in Europe, higher energy prices and the prospect of a slowdown in global trade due to tariffs under US President Donald Trump.

Reeves and Prime Minister Keir Starmer have said they would reduce planning permit delays and other regulatory barriers to boost confidence, a message Reeves repeated after Thursday’s data.

“We are taking on the blockers to get Britain building again, investing in our roads, rail and energy infrastructure, and removing the barriers that get in the way of businesses who want to expand,” she said.

The Conservative opposition said the fall in GDP per capita meant Reeves was presiding over a recession in living standards, if not outright.

A rise in borrowing costs and the subdued economic picture mean Reeves may be forced to announce spending cuts if she is to stay within her self-imposed borrowing rules when government forecasters update their projections next month.

Reuters