The UK economy delivered unexpected GDP growth of 0.1% in the last three months of 2024. 0.9% growth for 2024 was lower than that achieved by several G7 countries including Canada and France.
Following the release of this data, industry experts have shared their thoughts.
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK GDP figures: “Even this miniscule scrap of growth will be a relief for the Treasury, which could have been dealing with a very different set of headlines this morning.
“The economy is hardly in good health and another quarter bumping along the bottom is not the growth the government has promised. In fact when you compare the UK economy with that of other G7 countries the UK wasn’t at the front of the pack in 2024, it was stuck somewhere in the middle with Germany and Italy bringing up the rear.
“There’s always the possibility that these figures could be revised but right now it looks like the UK has dodged the confidence sapping label of a technical recession.
“After a bruising Budget and a halving of growth forecasts by the Bank of England, any bit of good news should be celebrated, and the government has shifted tack over the last month or so with backing for big infrastructure projects like Heathrow’s third runway putting meat on the bones of the chancellor’s growth plans.
“But this isn’t the kind of growth that will make people feel better off, something Keir Starmer has said will be the way we can judge the government’s success. Add in population growth and GDP per head actually fell in 2024 compared to the year before.
“Interest rates may be falling but that takes time to filter through to households and many are still wary of spending as company after company warns that changes to employer NI will supress wage increases and result in fewer jobs being created. Many more are still finding the impact of higher prices difficult to deal with, especially after a hike in the energy price cap, and warnings that inflation will nudge back up later in the year have further dented confidence.
“The big question that must be troubling the chancellor is how quickly this lacklustre economic performance can be turned around and in the near-term how much that fiscal headroom has shrunk since the OBR’s last workings.
“Today’s headlines will bring a degree of relief and miniscule growth is still growth – something the government can point to and say the plan is beginning to work. But with those tax increases still in the post and real concerns about trade if US tariffs gum up the global works, the government’s plans will face difficulties if the economic engine is still running on fumes.”
Patrick O’Donnell, Senior Investment Strategist, Omnis Investments said: “An upside surprise versus consensus estimates but there isn’t a huge amount of news in this release. I don’t think the market will materially reassess the growth trajectory of the UK economy today and the market moves shouldn’t be material. The Bank of England cut their growth forecast for this year, halving it to 0.75%. The OBR has also cut its forecast, potentially meaning that spending cuts, tax rises or ingenious growth-enhancing strategies are required from the government to stay within the chancellor’s fiscal rules. A lot can happen between now and when the OBR delivers its final update to the spring forecast in March. For example, economic models will show that a recent update from the ONS showing faster population-growth will boost potential GDP growth by the end of the parliament, thus replacing some of Chancellor Reeves lost fiscal headroom. Time will tell.”
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said: “This morning’s data confirms that the UK economy narrowly managed to avoid a contraction in the final quarter of 2024, owing to a stronger than expected outturn in December. Coming off the back of flatlined growth in Q3, the results ease the pressure on the Chancellor, in grave danger of breaking her fiscal rules at the start of the new year.
“The service sector saw small improvements, as it did in Q3, but consumer spending remained subdued, with confidence surveys confirming the sour mood across both businesses and households. Operating conditions in the manufacturing and industrial sectors remained difficult, with weak trade serving to heap a further drag on the overall picture.
“Last week the Monetary Policy Committee voted to cut the base rate, accompanied by a sharp reduction in forecast growth for 2025, suggesting no robust turnaround and a subdued outlook for the immediate future. Business surveys indicate that depressed confidence will keep business investment decisions at a low ebb, but government spending should act as a partial offset, as it did over the latter part of 2024.
“While the Bank of England would surely like to aid the ailing economy, rate-setters’ willingness to opt for further rate cuts will depend on how persistent inflationary pressures prove to be.”
Douglas Grant, Group CEO of Manx Financial Group, said: “Latest UK GDP figures offer some reassurance to businesses and consumers, although the broader economic outlook remains challenging, particularly for SMEs. Persistent cost pressures, driven by high input prices and compounded by geopolitical factors such as trade tariffs and fiscal measures continue to squeeze costs and consumer spending. This environment heightens pressure on businesses, amplifying investment hesitancy and emphasising the need for adaptable lending strategies to navigate this turbulent economic landscape.
“Research from Manx Financial Group reveals that nearly a third of UK SMEs have paused or scaled back operations due to financial constraints. Although this marks an improvement from 40% in the previous year, significant hurdles persist. Access to external financing remains a challenge for around 10% of SMEs, highlighting the need for a more stable and inclusive lending environment. With the SME lending landscape rapidly shifting, Labour must urgently recalibrate its policies to better support these essential businesses.
“Given SMEs’ role in driving growth, employment, and innovation, the Labour Government must create a stable lending environment for their resilience and expansion – although at this stage, the Government’s growth ambition hasn’t yet translated into legislation governing access to financing in the UK . Both traditional and alternative lenders are key
Harry Woolman, Analyst at Validus Risk Management, said: “UK GDP for Q4 2024, released this morning, came in 0.1 percentage point higher than the forecasted decline of 0.1%. The data challenges the Bank of England’s decision to halve its growth forecasts for the UK economy this year, although headwinds certainly remain. Stagflation remains a real possibility amid underwhelming growth and persistent price pressures, whilst today’s reading, despite being in positive territory, is not exactly a blockbuster print.
“Furthermore, a tightening labour market combined with limited fiscal headspace warrant little optimism for the economy’s near-term prospects. These factors underpin already elevated wage inflation, suggesting the Bank of England may not be able to lower rates as desired.”
Luke Bartholomew, Deputy Chief Economist, abrdn, said: “While still very weak in absolute terms, today’s GDP numbers were much better than expected and may act as something of a narrative break. Certainly it is difficult to see the economy slipping into a technical recession in the near term now. Nonetheless, it is still very likely that the OBR will need to sharply downgrade its growth forecasts, putting more pressure on the Chancellor to meet her fiscal rules. And there are still material headwinds from the upcoming National Insurance increase, which is likely to weigh on employment and push up on inflation. So further gradual interest rate cuts are still likely.”
Lindsay James, investment strategist at Quilter Investors: “The UK economy has proven stronger than expected in this morning’s GDP print, with monthly real GDP up 0.4% in December compared to the 0.1% that had been anticipated, largely due to improved growth in the service sector. This fed into a surprise uptick in quarterly growth, albeit only 0.1% between October to December 2024. Given there was no growth in the previous quarter and a contraction had been expected, even minimal growth such as this is a positive.
“This morning’s figures are a little better than expected, but the outlook is still concerning, with forecasts for the year ahead being adjusted to lower levels. The Bank of England has slashed its forecasts in half from 1.5% to 0.75% growth this year, leaving OBR forecasts from October – which projected 2% growth in 2025 and 1.8% in 2026 – looking very out of kilter.
“While gilt yields have fallen since the volatility seen in mid-January, recently downgraded estimates for the UK economy will be a far greater concern to Chancellor Rachel Reeves. She will likely face the difficult choice of either cutting spending, raising taxes or adjusting her fiscal rules at the spring statement in March. However, the government has committed to having only one fiscal event per year and has made oft-repeated assurances that it will leave the main sources of tax revenue well alone. Meanwhile, the Treasury’s soundbite of ‘non-negotiable fiscal rules’ has been repeated so often that the only plausible solution appears to be spending cuts.
“The most sensible choice would seemingly be to address the current fiscal rules which mean that what is in essence a fairly immaterial shortfall, which is likely to be recovered in the coming years, will trigger spending cuts on already decimated public services. That this approach is due to change in 2026/27, when a tolerance of +/-0.5% of GDP will be added to the balanced budget approach in order to help avoid the exact scenario currently faced, underlines the fallacy of cutting spending at this juncture.
“The UK economy is still expected to see an improvement in growth as we move through 2025, but high levels of uncertainty remain. The impact of US tariffs is one of the largest risks as even if British goods are not targeted, many British firms contribute to global supply chains that will be affected. In addition, higher energy costs, with European natural gas recently hitting two year highs, will not help matters.
“While the outlook is rather dreary, a glimmer of hope has come in the form of UK equities which have begun the year on a stronger footing, with returns exceeding those from US equities. This reflects the benefit of international revenues, providing a clear reminder that diversification remains crucial for investors.”
