The economy grew by 0.1% on a monthly basis in November – the first time it has expanded in three months. It follows two months of contraction, with UK GDP coming in at -0.1% in both September and October.
The figure still disappointed expectations though. Analysts had forecast growth of 0.2% in a Reuters poll. The economy also showed no signs of growth at all on a three-month basis.
The services sector (the largest segment of the UK economy) was the biggest contributor to growth during the month, expanding by 0.1%. The main areas driving this growth were accommodation and food services businesses.
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Construction also grew by 0.4% on a monthly basis, while production fell by 0.4%.
“This disappointingly modest return to growth for the UK economy is unlikely to ease stagflation concerns, with a recovery in service sector output helping drive only a slight strengthening in overall activity,” says Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.
Limp economic growth in November, combined with a lower-than-expected inflation figure in December, could boost the odds of an interest rate cut when the Bank of England next meets in February.
However, there are concerns that inflation could pick up again in the months to come thanks to rising energy bills, changes to employer’s National Insurance, and potential tariffs from incoming president Donald Trump.
“Though these disappointing [GDP] 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,” Thiru adds.
Reeves: “determined to go further and faster”
Responding to the latest GDP figures, chancellor Rachel Reeves said: “I am determined to go further and faster to kickstart economic growth, which is the number one priority in our Plan for Change.
“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.
“After fourteen years of economic stagnation, this government’s number one mission is to grow our economy. I will fight every day to deliver that growth and put more money into working people’s pockets.”
Although November’s GDP figures disappointed expectations, Reeves will be relieved that the economy has at least returned to growth this month – however limp that growth might be. Yesterday’s better-than-expected inflation report also offered her a brief reprieve amid growing public scrutiny.
Reeves has come under fire over the past week due to turmoil in the gilt market. The cost of government borrowing has surged as a result of new inflation concerns, with 10-year gilt yields moving north of 4.85% at the height of the crisis. Some critics are blaming policies announced in the Autumn Budget. However, government bond yields in the US and Germany have also been rising.
Will interest rates be cut in February?
The Monetary Policy Committee (MPC) will announce its next interest rate decision on 6 February. It is possible that November’s GDP report will bolster the case for a cut.
“The newest member of the MPC, Professor Alan Taylor, has called for pre-emptive measures, saying he’s more worried about the sluggish nature of the economy than rising prices,” says Danni Hewson, head of financial analysis at investment platform AJ Bell.
The odds of an interest rate cut had already jumped from 60% to 80% as of yesterday, based on Refinitiv data shared by AJ Bell. This shift was driven by the latest inflation report, which revealed a surprise drop in the rate of inflation to 2.5% in December.
Markets are currently pricing in two rate cuts in 2025 overall, although economists polled by Reuters have indicated that four cuts are more likely.
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