In November, following Finance Minister Rachel Reeves' announcement of significant tax increases for businesses, Britain's economic output returned to growth but with a smaller-than-expected expansion. Official data revealed a 0.1% increase in gross domestic product from October, falling short of the 0.2% rise predicted by most economists polled by Reuters.
Reeves, after implementing substantial raises in social security contributions for employers in her October 30 budget, expressed determination to further accelerate economic growth.
Ben Jones, the lead economist at the Confederation of British Industry, noted a sense of caution among UK businesses post-budget, foreseeing a focus on reducing operational costs which might hamper pay, recruitment, and investment in the coming months.
Rob Wood, the chief UK economist at Pantheon Macroeconomics, attributed the ongoing pessimism in the UK economy to the budget's tax hikes and global uncertainty following Donald Trump's US presidential election victory.
Wood pointed out that while the Bank of England was likely to lower rates in February, the economic outlook was more positive than the late 2024 data suggested, dismissing talk of recessionary risks as exaggerated.
Following the data release, the value of the sterling dropped against the US dollar before partially recovering. The Office for National Statistics reported slight growth in the services sector, although manufacturers and oil and gas companies experienced a decline in November.
Amidst concerns over the slow recovery from the COVID-19 pandemic, the British economy recorded zero growth in the third quarter due to business uncertainty preceding the budget announcement. The Bank of England anticipates the economy to have stagnated in the final quarter of 2024, with an upturn expected in 2025 due to increased government spending.
Anxiety about Britain's sluggish economy led to a recent surge in government borrowing costs, but these eased significantly after inflation data from the UK and the US hinted at potential speedier rate cuts.
Lindsay James, investment strategist at Quilter Investors, highlighted that the full impact of the budget, including the slated social security hikes starting in April, was yet to unfold. Additionally, the forthcoming inauguration of Trump and the subsequent policy effects were likely to influence the economic landscape later in the year.
Prime Minister Keir Starmer aims for the fastest per capita GDP growth among the Group of Seven advanced economies. The ONS cited a 1.0% year-on-year growth rate in November, below the economists' forecasted 1.3% expansion.