UK Economy Unexpectedly Returns To Growth

(RTTNews) - The U.K. economy logged a surprise expansion in the fourth quarter of 2024, but the mild growth is unlikely to ease the pressure on the Chancellor who aims to turbocharge growth.

Gross domestic product grew 0.1 percent from the third quarter, when there was nil growth, the Office for National Statistics reported Thursday.

The figure defied the 0.1 percent contraction that both economists and the Bank of England had expected.

Data showed that the 0.1 percent growth was solely driven by a large increase in changes in inventories rather than exports and gross fixed capital formation.

Household expenditure registered no growth in the fourth quarter, while government spending increased 0.8 percent. Gross fixed capital formation dropped 0.9 percent and business investment shrunk 3.2 percent.

The trade deficit for goods and services was 1.6 percent of nominal GDP in the fourth quarter. On the production side, the services sector expanded 0.2 percent and construction output grew 0.5 percent in the fourth quarter. Partially offsetting these gains, industrial production declined 0.8 percent. On a yearly basis, the fourth quarter growth in GDP came in at 1.4 percent compared to 1.0 percent in the third quarter.

Real annual GDP in 2024 was estimated to have increased 0.9 percent, following growth of 0.4 percent in 2023.

Further, data showed that the economy registered a monthly growth of 0.4 percent in December alone after rising 0.1 percent in November.

ING economist James Smith said the combination of weaker economic growth and higher market rates has likely eroded the already-limited fiscal 'headroom' granted to Chancellor Rachel Reeves. "Tweaks to future spending plans look likely in March," said Smith. British Chambers of Commerce Research Manager Stuart Morrison said, "Confirmation that the economy grew slightly in Q4 is a small bit of relief for businesses in challenging times."

Despite the headline data, it is clear that many firms faced a chill of uncertainty in the final months of last year, added Morrison.

CBI Lead Economist Ben Jones said, although growth over the fourth quarter as a whole was still lacklustre, the data supports the view that the loss of momentum in the second half of last year will prove to be a soft patch for the economy rather than a slide back into stagnation.

In the fourth quarter, industrial production decreased 0.8 percent from the previous three months and manufacturing dropped 0.7 percent. Another data from the ONS showed that the visible trade gap narrowed to GBP 17.4 billion in December from GBP 18.9 billion in the previous month.

The total trade deficit that combines trade in goods and services declined sharply to GBP 2.8 billion from GBP 4.4 billion in November.