UK recession fears ease as economy grows by 0.1% in October-December – business live

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UK's manufacturing recession continues as carmaking declines

Today’s GDP report shows that Britain’s production sector has shrunk for the last five quarters in a row, with activity declining by 0.8% in the fourth quarter of last year.

The fall in production was largely driven by a 0.7% decline in manufacturing and a 2.5% decline in mining and quarrying, the Office for National Statistics report.

The largest negative contributions came from the manufacture of transport equipment, which fell by 2.3%, and the manufacture of pharmaceuticals, which fell by 4.0%.

The ONS says:

The manufacture of transport has fallen for three consecutive quarters, mainly because of a decline in the manufacture of motor vehicles and motorcycles.

Data earlier this year showed that British car production fell in 2024 to its lowest level in seven decades – barring the coronavirus pandemic – as the industry struggles with weak demand and prepares to shift away from fossil fuels to electric vehicles.

Shadow chancellor Mel Stride has accused chancellor Rachel Reeves of “killing growth” with her budget, delivered at the end of October - despite the economy growing by a decent 0.4% in December.

Stride claims working people and businesses are “already paying for her choices.”

“The Chancellor promised the fastest growing economy in the G7, but her budget is killing growth.

“Working people and businesses are already paying for her choices with ever rocketing taxes, hundreds of thousands of job cuts and business confidence plummeting.

“It does not need to be this way.

“Under new leadership, the Conservative Party will continue to oppose Labour’s disastrous decisions and stand up for businesses and working people up and down our country.”

UK mid-table for G7 growth

The UK appears to be mid-table for growth among G7 nations at the end of last year.

Britain’s growth of 0.1% in October-December puts it behind the US, which expanded by almost 0.6% in the quarter, and Canada where GDP is estimated to have expanded by 0.4%.

Japan’s GDP data, due on Sunday night, is expected to show growth of 0.3%.

The UK has outpaced the eurozone, which stagnated in Q4 2024, as did Italy. France shrank by 0.1% in the quarter, while the troubled German economy contracted by 0.2%.

Despite beating European rivals, the government clearly has work to do to hit its mission of making Britain the fastest-growing economy in the G7.

Pound rises over $1.25

The pound has hit a one-week high, after this morning’s GDP data beat expectations.

Sterling is up over half a cent at just over $1.25.

It has already been strengthening, as the markets welcomed the prospect of a peace deal between Ukraine and Russia.

Reeves: I won't accept failing economy

Chancellor of the Exchequer Rachel Reeves has responded to this morning’s GDP report, saying:

“For too long, politicians have accepted an economy that has failed working people. I won’t.

“After 14 years of flatlining living standards, we are going further and faster through our Plan for Change to put more money in people’s pockets.

“That is why we are taking on the blockers to get Britain building again, investing in our roads, rail and energy infrastructure, and removing the barriers that get in the way of businesses who want to expand.”

Real GDP per head falls for second quarter running

Worryingly, though, once you adjust for population changes you see that UK economic activity per person actually fell over the last two quarter.

Real GDP per head is estimated to have fallen by 0.1% in Quarter 4 2024, the ONS says.

Its first estimate shows that there was a slight fall in GDP per head of 0.1% in 2024.

A chart showing UK GDP per head Illustration: ONS

Economy picked up in December

In December alone, UK GDP expanded by a faster-than-expected 0.4% – helping the economy to grow in the final quarter of 2024.

ONS director of economic statistics Liz McKeown says:

“The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year. Across the quarter, growth in services and construction were partially offset by a fall in production. GDP per head, in contrast, fell back slightly in the quarter.

“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. However, these were partially offset by weak months for computer programming, publishing and car sales.”

The UK economy was supported by growth in the services sector, and in construction, in the final quarter of last year.

Britain’s services sector grew by 0.2%, while construction expanded by 0.5%.

The manufacturing sector contracted, though, with production output down by 0.8%.

UK beats forecasts as GDP rises 0.1% in October-December

Newsflash: Britain’s economy has avoided dropping into recession, after posting modest growth at the end of last year.

UK GDP rose by 0.1% in October-December, better than City economists had expected – they’d pencilled in a 0.1% fall in activity.

This will be a relief for chancellor Rachel Reeves.

That follows no growth in July-September, as previously reported.

The Office for National Statistics reports that the services and construction sectors grew, while production output fell.

However, the economy did shrink in Q4 on a per capita basis (GDP per head of population) – see here.

The UK government is hoping to spur growth by starting construction up to 12 new towns by the next election.

Each new town will have the potential for at least 10,000 homes with accompanying infrastructure, as the government promised to sweep away red tape and overcome environmental objections to get them built.

More here:

Introduction: UK GDP report in focus

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

We’re about to learn how the UK economy fared in the final three months of 2024.

The first estimate of UK GDP for the October-December quarter is due to be released at 7am, but it may not make cheerful reading for the government.

City economists are expecting to learn that the economy shrank by 0.1% in Q4 2024, which would Britain on the brink of a technical recession – defined as two quarterly contractions in a row.

The economy stagnated in July-September, so expectations are that the economy hasn’t grown in the two quarters since Labour won the general election in July.

Today’s data will also show how the economy performed in December. Earlier data has shown that GDP fell by 0.1% in October, followed by a 0.1% rise in November (these figures could be revised, though.)

And there are tougher times ahead, as Donald Trump threatens to ignite a trade war.

Michael Field, chief equity strategist at Morningstar, says:

Some sectors of the UK economy are clearly struggling, such as manufacturing and particularly areas like chemicals, as they are grappling with high energy prices relative to the US, making them less competitive. The danger is that US tariffs could also worsen the situation for exporters.

Interest rates have fallen by 75 basis points from the peak, with the market expecting another 65 basis points of cuts this year. The cuts may be coming at a slower pace than markets would like, but over time these cumulative cuts should help create a more supportive economic environment for businesses.”

The agenda

• 7am GMT: UK GDP report for October-December 2024

• 7am GMT: UK trade report for October-December 2024

• 9am GMT: IEA oil market report

• 9.30am GMT: Business investment in the UK: October to December 2024, provisional results

• 1.30pm GMT: US weekly jobless claims