What’s behind the UK’s unexpected return to growth?
The ONS said gross domestic product edged 0.1% higher between October and December after zero growth in the previous three months.
The UK economy saw a surprise return to growth in the final three months of 2024 after a better-than-expected performance in December.
The Office for National Statistics (ONS) said gross domestic product (GDP) edged 0.1% higher between October and December, defying forecasts by analysts and the Bank of England for a 0.1% contraction in the quarter.
It marks a welcome pick-up after zero growth in the previous three months, but experts said the performance remained lacklustre and there are concerns the UK will continue to see anaemic growth over the year ahead.
Here we look at the key questions behind the numbers:
– What is gross domestic product?
Gross domestic product, or GDP, is the term typically used to describe the size of a nation’s economy.
It is the measure of what is going on financially across all companies, governments and households.
– What drove the unexpected growth at the end of 2024?
The growth came after the economy expanded by a better-than-expected 0.4% in December, which was the fastest monthly growth since March last year.
The ONS said a boost from the all-important services sector was behind the growth in December, which followed a 0.1% rise in November and a 0.1% fall in October.
The ONS said: “In December, wholesale, film distribution and pubs and bars all had a strong month, as did manufacturing of machinery and the often-erratic pharmaceutical industry.”
But, in a sign of pressure on consumer spending, the retail sector suffered a poor December, with the ONS revealing last month that sales by volume fell 0.3% in the crucial festive shopping month.
– Does the fourth quarter growth mean the economy is back on track?
It sees the UK on a firmer footing and puts paid to fears that it was only a whisker away from recession.
Sandra Horsfield, at Investec, said while “sighs of relief from the Treasury to today’s GDP data seem almost audible across the City”, challenges still remain for the economy.
The Bank of England, last week, halved its forecast for growth to just 0.75% for 2025 and the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), is expected to reveal big downgrades when it reports back alongside the spring statement on March 26.
Uncertainty over US President Donald Trump and tariff hikes may also weigh on the economy this year.
– What does the GDP data mean for the Government?
It eases the immediate pressure on the Chancellor ahead of the spring statement, but worries remain over whether she will meet her fiscal rules, as well as the impact on businesses and jobs from recent budget measures.
Experts have said that big downgrades to OBR growth forecasts could wipe out her £10 billion “headroom” — spare money against its spending plans – leaving her with little option but to cut spending or even resort to tax hikes.
Chancellor Rachel Reeves has vowed to spur on economic growth and make it the Government’s top priority, but businesses are not convinced.
David Buttress, chief executive of energy giant Ovo, accused the Government of “contradictory messages”, pointing to the national insurance contributions (NICs) increase on businesses at the start of April.
A raft of firms have warned the tax hike will lead to job losses and higher prices.
While NICs “might have felt like a tax that could be absorbed by business, ultimately, in the end, it does affect us all as consumers,” Mr Buttress said.
– What about the outlook for interest rates?
The Bank last week cut rates to 4.5% from 4.75% and signalled that more reductions were likely in 2025.
The very modest growth between October and December is unlikely to hold it back from cutting again, but expectations for high-than-expected inflation may lead to caution among rate-setters.
