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The UK economy grew 0.1 per cent in November, undershooting analysts’ expectations, as chancellor Rachel Reeves comes under increasing pressure to rebuild confidence in the government’s fiscal plans.
The monthly figure was below the 0.2 per cent growth forecast by economists polled by Reuters and follows a 0.1 per cent contraction in both October and September, according to data published on Thursday by the Office for National Statistics.
Thursday’s data will not dispel concerns over the performance of the UK economy after fears of stagflation — when sluggish growth is accompanied by persistent price pressures — contributed to a sharp rise in borrowing costs at the start of the year.
Labour swept to power last July with a promise to put growth at the heart of its agenda, but Reeves has faced criticism over her October Budget, which left businesses bearing the brunt of £40bn of tax increases.
“This disappointingly modest return to growth for the UK economy is unlikely to ease stagflation concerns,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, adding that it was “unlikely to have sparked a more notable improvement in economic activity across the fourth quarter”.
November’s expansion, the first since August, was led by the dominant services sector, which grew 0.1 per cent and offset a 0.3 per cent contraction in manufacturing. The construction sector grew 0.4 per cent in November following a 0.3 per cent contraction in October. In November, the economy was still 0.1 per cent smaller than in March 2024.
In the three months to November, the economy registered no growth compared with the previous three months. Output was also flat in the third quarter, which marked a sharp slowdown from the 0.4 per cent expansion in the previous quarter. Growth was 0.7 per cent between January and March last year.
Following the release of the data on Thursday, Reeves said: “I am determined to go further and faster to kick-start economic growth.”
But Mel Stride, shadow chancellor, accused Reeves of “burying her head in the sand” and failing to take responsibility for a “crisis made in Downing Street”.
The GDP figures follow official data released on Wednesday showing an unexpected decline in inflation to 2.5 per cent in December from 2.6 per cent the previous month.
The inflation data sparked a sharp rally in gilts on Wednesday, pushing yields down from the 16-year highs hit this month, as investors increased bets on how far the Bank of England will cut interest rates this year.
The BoE left interest rates unchanged at 4.75 per cent last month after cutting borrowing costs twice in 2024. Markets largely expect that the central bank will cut its benchmark rate by a quarter-point in February.
In early trading on Thursday, gilts added to gains from Wednesday’s rally, pushing the 10-year yield down 0.03 percentage points to 4.71 per cent. Traders have priced in at least two quarter-point rate cuts this year from the BoE, according to levels implied by the swaps market.
Sterling, which has fallen more than 2 per cent against the dollar this year, was flat at $1.220 following the release of the data.
Barret Kupelian, chief economist at consultancy PwC, said: “Given the latest inflation reading yesterday, weaker than expected growth could help pave the way for faster rate cuts by the Bank of England.”
In December, the BoE said it expected no growth in the final three months of the year, down from a 0.3 per cent expansion it had forecast in November.
Alan Taylor, an external member of the Monetary Policy Committee, warned on Wednesday that the most recent forward-looking activity indicators presented an “increasingly gloomy outlook for 2025”, as he called for the BoE to make several rate cuts this year.
Experts polled by the Financial Times at the end of last year expected the UK economy to outperform France and Germany in 2025. But they warned that Reeves’ plans to increase employers’ national insurance contributions could hurt the labour market and wider economy. The chancellor announced the rise in her October Budget but it will only take effect in April.
Simon Pittaway, senior economist at the Resolution Foundation think-tank, said the UK had been “a growth rollercoaster”, with a recession in late 2023 followed by a bounceback in early 2024. “But its longer-term record is one of economic stagnation, and that is where Britain risks returning to.”
Additional reporting by Ian Smith
