Pressure eases on Rachel Reeves as UK economy grows by 0.1% in November

The UK economy grew by 0.1% in November, reversing a 0.1% drop in the previous month, and easing some of the pressure on the chancellor, Rachel Reeves.

The rise in activity was weaker than forecast, with Reeves acknowledging it would take time to revive the UK economy.

City economists had forecast that GDP would rise by 0.2% in November, with some warning that November’s growth was weak, making an interest rate cut by the Bank of England next month more likely.

UK government borrowing costs fell after the data was released, which will increase the chances that Reeves does not breach her fiscal rules. On Wednesday, bond yields dropped at the fastest rate since 2023 after UK inflation eased, in another fillip for the chancellor.

In the three months to the end of November, the Office for National Statistics (ONS) said the economy showed no growth, as GDP fell by 0.1% in September and October.

Simon Pittaway, a senior economist at the Resolution Foundation, said the GDP data was disappointing, raising fears of stagnation, despite a welcome return to growth. “In recent years the UK has been a growth rollercoaster, with a recession in late 2023 followed by a bounce back in early 2024. But its longer-term record is one of economic stagnation, and that is where Britain risks returning to.

“The paltry GDP growth late last year reinforces the need for the government’s economic plans to start bearing fruit.”

The ONS’s director of economic statistics, Liz McKeown, said: “The economy continues to be broadly flat, having grown slightly in November following two small falls in the previous months.”

She added that services “grew a little”, with wholesaling, pubs and restaurants and IT companies all faring well, partly offset by falls in accountancy and business rental and leasing.

“Construction also grew, led by new commercial developments, while production continued to decline in November with further falls across a range of manufacturing industries and oil & gas extraction companies.”

Fears remain that the UK economy is on course to stall overall in the final three months of 2024, after zero growth in the three months to the end of September.

The Bank of England has pencilled in no growth for the fourth quarter, leading to worries that the UK could undergo a long period of stagnation combined with relatively high inflation, although growth in prices unexpectedly fell from 2.6% to 2.5% in December.

Reeves blamed “14 years of economic stagnation” for the economic situation, adding that she was determined to “kickstart growth, which is the No1 priority in our Plan for Change”.

She said: “That means generating investment, driving reform and a relentless commitment to root out waste in public spending, and today I will be pressing regulators on what more they can do to deliver growth.”

The chief executives of watchdogs including the Competition and Markets Authority, Ofcom, Ofwat, and Ofgem were due to meet the chancellor and the business secretary, Jonathan Reynolds, at Downing Street on Thursday.

The shadow chancellor, Mel Stride, said UK growth in the first half of 2024, before Labour was elected, ranked as the fastest in the G7, but had since slowed. He said Reeves was “killing investment and jobs”.

Stride added: “This is the third month in a row of disappointing growth figures. The chancellor seems content with burying her head in the sand and blaming the previous government, but this is a crisis made in Downing Street. We need an urgent change of course.”

Keir Starmer told broadcasters that the government would be “unrelenting” in its pursuit of economic growth. “It was always going to take time to turn around 14 years of economic failure under the last government. That was always going to take time,” said the prime minister during a trip to Ukraine.

“The figures out today are a step in the right direction, but there’s much, much more we’ve got to do and that we will do. We’re going to be unrelenting when it comes to driving our economy forward – changing the planning rules, changing regulation,” Starmer added.

Food sales at supermarkets picked up in November, helping to lift the services sector. But this rise was offset by a fall in industrial production. Manufacturing, which has suffered amid a downturn in the car industry and from Brexit, contracted by 1% over the quarter, while the services sector was flat.

Suren Thiru, economics director at ICAEW, said the “disappointingly modest return to growth” was unlikely to ease concerns that low growth married to relatively high inflation would persist.

Thiru said that despite the chancellor’s plans to boost economic growth, her budget in October had caused dramatic damage to confidence. Meanwhile, global uncertainty was also likely to have suppressed activity in December. “Though these disappointing figures make a February interest rate cut more probable, concerns over financial market fragility and heightened global inflation risks mean a policy loosening next month is not quite done and dusted,” he added.

The money markets now indicate there is an 83% chance that the Bank of England cuts interest rates at its next meeting, on 6 February.

The pound dipped by a third of a cent against the US dollar on Thursday, to $1.22.

Reynolds said he was worried about a potential tariff war after Donald Trump’s return to the White House. “It’s going to be a challenging time for anyone who is responsible for trade in a big economy because of some of those pledges that were made in the campaign,” he told Sky News.

Asked if he was worried about a tariff war, he said: “I am. I am, because the UK is a very globally orientated economy, so the exposure, the danger to the UK, is actually greater than even some comparable countries around that.

“So, a lot of our work has been preparing for that, engaging early with the new administration.”