At the end of 2024, unexpected growth was recorded in the economic system of the United Kingdom, which is because the increase in public spending provided the Labour government with a kind of reprieve after negative indicators.
In the fourth quarter of 2024, UK gross domestic product (GDP) grew by 0.1%. This is minimal growth, but a very important result for London, which has had very few reasons to be optimistic about its economic prospects lately. Information about the dynamic of the United Kingdom’s economic system was published on Thursday, February 13, by the Office for National Statistics. It is worth noting that in the third quarter of last year, the country’s GDP did not show any changes.
Also, the growth of the United Kingdom economy in the last three months of the past year exceeded the preliminary expectations of experts interviewed by the media. They expected UK GDP for the mentioned period to show a decrease of 0.1%. The corresponding forecast was due to the fact that in the second quarter of 2024, a contracting was recorded in the private sector of the country, after which the implementation of the recession scenario began.
Overall, output in the United Kingdom grew 0.4% faster in December compared with the pace provided by preliminary forecasts.
Downing Street is satisfied with the dynamic of UK GDP figures for the fourth quarter of 2024. In this case, the growth was unexpected but obviously pleasant. For Downing Street, an increase in GDP is important not only because the upward dynamic of the corresponding indicator is always good, but also in the context of the fact that London has avoided a recession scenario for the entire economy of the United Kingdom. At the same time, the details of the economic situation in the UK in the fourth quarter of 2024 are not unambiguously positive and can be described as the very nuance that overshadows the generally positive information.
Matt Swannell, chief economic adviser to the EY ITEM Club, said that the standard of living in the United Kingdom has suffered a setback. In this context, the expert noted that the GDP per head in the UK shrank for the second quarter in a row. It was also separately highlighted that domestic private demand in the United Kingdom was much weaker at the end of 2024.
It is worth mentioning that last year in the UK there was a sharp deterioration in business and consumer sentiment. The corresponding situation was the result of several gloomy warnings from the United Kingdom government about the country’s prospects and significant tax increases on employers in the October budget. Labour said the tax rise was necessary to fund public services. Against this background, the UK tax burden and the size of the state are on track to reach their highest level since the end of World War II.
Capital Economics chief UK economist Paul Dales said that the October budget decisions contributed to an increase in activity in the public sector, but at the same time caused a drop in activity in the private sector. The expert also noted that a slight recovery in the fourth quarter of 2024 leaves the economic system all-but stagnating, as businesses adjust to higher taxes and greater uncertainty from overseas.
Data released by the Office for National Statistics on Thursday shows that government consumption in the United Kingdom increased by 0.8% in the fourth quarter of 2024, driven by health, defense, and public administration. At the same time, household spending for the mentioned period remained at the same level. Business investment dropped 3.2% in the fourth quarter of 2024.
It is worth mentioning that after returning to power, Labour announced several measures aimed at accelerating economic growth and stimulating private investment. They also signaled their willingness to resolve controversial issues, including, for example, the approval of the construction of a third runway at Heathrow Airport. However, it may take time to implement the relevant plans.
The United Kingdom’s economic system continues to face pressure from factors such as high interest rates and declining confidence. Another problematic circumstance of what can be called a global reality in the political and economic sense is the increasing threat of a world trade war. The corresponding prospect, which affects the UK, is becoming more realistic against the background of the tightening of the tariff policy of the United States and retaliatory measures, which are planned by the European Union and which have already been imposed by China. The aggravation of this situation is a threat to the entire global economy.
In general, for the whole of 2024, the GDP of the United Kingdom showed growth of only 0.9%. The Bank of England expects the economy’s weakness to persist in the current year. The financial regulator of the United Kingdom predicts that the country’s GDP will grow by 0.7% in 2025. It is worth noting that this indicator has been halved compared to the figure contained in the previous version of the forecast.
Data on the dynamic of the United Kingdom’s GDP for the fourth quarter of 2024 provide Chancellor of the Exchequer Rachel Reeves some respite. Signs of an improvement in the economic situation, despite the very moderate nature of these indicators, may improve government sentiment ahead of important new forecasts from the Office for Budget Responsibility next month. Currently, the United Kingdom’s economy is in a condition, which is slightly better than the state of affairs observed before the Labour Party took office in July.
After the publication of data on the dynamic of UK GDP in the fourth quarter of 2024, the pound continued to grow. The currency rose 0.6% to $1.2517. The corresponding indicator is the highest in more than a week. The move, which was supported by the broadly weaker dollar, extends the weekly advance of the pound to 0.9%.
The Office for National Statistics said that the United Kingdom’s economic growth in December was driven by pubs and bars, which had a strong month. In this case, wholesale trade, film distribution, machinery manufacturing, and the pharmaceutical industry were also mentioned as growth factors. At the same time, a downturn was observed in computer programming, publishing, and car sales.
When accounting for population increases, data on the dynamic of the United Kingdom’s economy would be less optimistic. GDP per capita for the fourth quarter of 2024 fell by 0.1%. It is worth noting that this indicator is on a downward trajectory for the second quarter in a row. Over the past two years, the mentioned figure has fallen by 1.1%.
At the same time, various nuances and unpleasant details do not negate the fact that the United Kingdom’s economic system was able to avoid recession, which is an achievement. However, the future prospects are still not unambiguously positive. The reason for this is the mentioned nuances and details, which do not cancel the positive result, but decline the likelihood of its recurrence.
The faltering performance of the United Kingdom’s economy will be a headache for Rachel Reeves. It is possible that she will be forced to find savings or raise taxes to meet her fiscal rules next month.
Office for Budget Responsibility projections delivered last week suggest Rachel Reeves is on track to face a small hole in her plans when it delivers its full forecasts in March. At the same time, it is worth noting that projections may change as additional economic data is published. The Treasury has launched an inquiry into how the Office for Budget Responsibility’s forecasts were uncovered.
UK businesses have hit out at the first budget involving tax rises of more than 40 billion pounds ($50 billion). In this case, it was envisaged to increase employer contributions to national insurance by 26 billion pounds. Special surveys results indicate that the mentioned measures may cause job losses.
The dynamic of the GDP indicator is also vital for the Bank of England. Its rate-setters weigh sticky inflation against a need to support the economy.
As we have reported earlier, UK’s Long-Term Borrowing Costs Demonstrate Growth.
