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Wednesday, Apr 02, 2025

Modest UK Economic Growth Eases Pressure on Chancellor Reeves

Modest UK Economic Growth Eases Pressure on Chancellor Reeves

November's GDP increase of 0.1% offers only slight relief as concerns over long-term stagnation persist.
The United Kingdom saw its economy expand by a mere 0.1% in November, a figure that failed to meet the expectations of economists but nonetheless provided some respite for Chancellor Rachel Reeves.

This marginal growth follows a contraction in October, signaling ongoing volatility in the nation's economic performance.

City economists had projected a 0.2% rise in GDP for the month, making the weaker outcome notable.

This development raises the prospects of the Bank of England considering an interest rate cut in its upcoming meeting, as borrowing costs have already dipped in response to the latest data.

This may increase the probability that Chancellor Reeves can adhere to her fiscal rules, as bond yields experienced their sharpest decline since 2023.

The Office for National Statistics (ONS) highlighted that while November showed a return to growth, the economy overall displayed no change in output over the three months leading up to November, primarily due to a 0.1% contraction in the preceding months of September and October.

Economist Simon Pittaway from the Resolution Foundation noted the disappointment in the November data, voicing concerns about a potential return to economic stagnation despite emerging from a technical recession.

Reeves, addressing the economic climate, attributed the sluggish growth to '14 years of economic stagnation' and emphasized her focus on revitalizing the economy.

After a meeting involving key regulatory authorities, including the Competition and Markets Authority and Ofcom, the Chancellor announced plans to scrutinize proposals from 17 regulators aimed at fostering growth.

Each regulator has been tasked to submit five proposals that could potentially dismantle barriers to economic expansion.

In a strategic move, Business Secretary Jonathan Reynolds joined Reeves in advocating for a cultural shift among regulators, aiming to pivot from risk-aversion to growth facilitation.

The government's current economic strategy remains under scrutiny as the fear of stalling growth in the final quarter of 2024 looms large, compounded by the challenge of high inflation.

Shadow Business Secretary Andrew Griffith criticized Reeves' strategy as lacking innovation, suggesting it mirrored desperation rather than a robust framework for growth.

Likewise, Shadow Chancellor Mel Stride expressed concern over the direction of economic policies, indicating that the current government had turned a favorable economic situation into a crisis.

Prime Minister Keir Starmer, supporting Reeves, stressed that reversing the economic challenges inherited from the previous administration would require time and a persistent focus on regulatory and planning reforms.

Market dynamics saw the yield on UK 10-year government bonds drop slightly to 4.67%, relieved from the extreme highs encountered earlier in the month.

Concurrently, consumption seemed to bolster the service sector, with an uptick in food sales at supermarkets and enhanced activity in pubs and restaurants, although this was countered by a decline in manufacturing, heavily impacted by Brexit and challenges in the automotive industry.

Suren Thiru, economic director at the Institute of Chartered Accountants, underscored the modest growth as insufficient to allay fears of protracted low growth coupled with high inflation.

Despite possible monetary easing by the Bank of England, global economic uncertainties and market fragility continue to pose significant risks.

With money markets suggesting a high probability of an interest rate cut next month, the financial community remains watchful.

Concurrently, international trade dynamics, particularly with the US, present further challenges.

Business Secretary Reynolds expressed apprehensions about potential tariff conflicts under a new US administration, acknowledging the UK's global economic engagement heightens its exposure to such risks.
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