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The UK financial system noticed a shock return to progress within the last three months of 2024 after a better-than-expected efficiency in December.
The Workplace for Nationwide Statistics (ONS) stated gross home product (GDP) edged 0.1% larger between October and December, defying forecasts by analysts and the Financial institution of England for a 0.1% contraction within the quarter.
It marks a welcome pick-up after zero progress within the earlier three months, however specialists stated the efficiency remained lacklustre and there are considerations the UK will proceed to see anaemic progress over the yr forward.
Right here we take a look at the important thing questions behind the numbers:
– What’s gross home product?
Gross home product, or GDP, is the time period sometimes used to explain the dimensions of a nation’s financial system.
It’s the measure of what’s going on financially throughout all corporations, governments and households.
– What drove the surprising progress on the finish of 2024?
The expansion got here after the financial system expanded by a better-than-expected 0.4% in December, which was the quickest month-to-month progress since March final yr.
The ONS stated a lift from the all-important companies sector was behind the expansion in December, which adopted a 0.1% rise in November and a 0.1% fall in October.
The ONS stated: “In December, wholesale, movie distribution and pubs and bars all had a robust month, as did manufacturing of equipment and the often-erratic pharmaceutical trade.”
However, in an indication of strain on shopper spending, the retail sector suffered a poor December, with the ONS revealing final month that gross sales by quantity fell 0.3% within the essential festive procuring month.
– Does the fourth quarter progress imply the financial system is again on monitor?
It sees the UK on a firmer footing and places paid to fears that it was solely a whisker away from recession.
Sandra Horsfield, at Investec, stated whereas “sighs of reduction from the Treasury to in the present day’s GDP knowledge appear nearly audible throughout the Metropolis”, challenges nonetheless stay for the financial system.
The Financial institution of England, final week, halved its forecast for progress to simply 0.75% for 2025 and the UK’s fiscal watchdog, the Workplace for Funds Accountability (OBR), is anticipated to disclose huge downgrades when it reviews again alongside the spring assertion on March 26.
Uncertainty over US President Donald Trump and tariff hikes can also weigh on the financial system this yr.
– What does the GDP knowledge imply for the Authorities?
It eases the rapid strain on the Chancellor forward of the spring assertion, however worries stay over whether or not she’s going to meet her fiscal guidelines, in addition to the influence on companies and jobs from current finances measures.
Consultants have stated that huge downgrades to OBR progress forecasts might wipe out her £10 billion “headroom” — spare cash in opposition to its spending plans – leaving her with little possibility however to chop spending and even resort to tax hikes.
Chancellor Rachel Reeves has vowed to spur on financial progress and make it the Authorities’s high precedence, however companies will not be satisfied.
David Buttress, chief government of vitality large Ovo, accused the Authorities of “contradictory messages”, pointing to the nationwide insurance coverage contributions (NICs) improve on companies initially of April.
A raft of corporations have warned the tax hike will result in job losses and better costs.
Whereas NICs “might need felt like a tax that might be absorbed by enterprise, finally, ultimately, it does have an effect on us all as shoppers,” Mr Buttress stated.
– What concerning the outlook for rates of interest?
The Financial institution final week reduce charges to 4.5% from 4.75% and signalled that extra reductions had been doubtless in 2025.
The very modest progress between October and December is unlikely to carry it again from chopping once more, however expectations for high-than-expected inflation could result in warning amongst rate-setters.
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