UK GDP Rises Despite Economic Challenges

The UK economy grew unexpectedly in the final quarter of 2024, driven by strong performance in the construction and services sectors. According to official GDP figures, the economy expanded by 0.1% between October and December, defying analysts' predictions of a contraction.

Growth was supported by industries such as pubs, bars, and machinery manufacturers, which had a particularly strong December. However, despite this slight economic boost, data also indicated that UK living standards declined slightly in 2024 compared to 2023.

Concerns Over Economic Growth in 2025

With tax increases set to take effect in April, concerns persist that UK economic growth may remain sluggish. Businesses warn that rising National Insurance contributions, minimum wages, and reduced business rate relief could limit expansion, leaving employers with less cash for pay raises and job creation.

The Bank of England recently halved its 2025 UK growth forecast, citing fears that rising costs for businesses could harm hiring, profits, and investment, potentially increasing inflation. In response, the Bank cut interest rates to 4.5% last week in an attempt to stimulate the economy.

Economic Outlook: Expert Analysis

Paul Dales, chief UK economist at Capital Economics, described the economy as "all-but stagnating" due to higher costs and increasing uncertainty. He also pointed to new US trade tariffs under President Donald Trump as a factor impacting UK exports.

Dales emphasized that much of the UK’s economic weakness stemmed from tax increases introduced by Chancellor Rachel Reeves in her 2024 Budget. These changes have reportedly dampened business confidence, investment, and consumer spending.

"Overall, the economy is unlikely to do more than move sideways over the next six months," he suggested.

UK Government's Response to GDP Growth

Despite concerns, the UK government welcomed the positive Q4 2024 GDP growth, as boosting economic performance has been a key priority.

A separate Office for National Statistics (ONS) report revealed that real GDP per head—a measure of living standards—fell by 0.1% in 2024. This metric tracks the amount of goods and services available per person, with declines indicating reduced economic well-being.

Economic growth typically leads to increased business profits, job creation, and higher wages, which, in turn, generate more tax revenue for public services. However, these benefits take time to be felt across the economy and may not impact all individuals equally.

Industry Trends: Which Sectors Grew in December 2024?

The UK economy grew by 0.4% in December 2024, with strong performances in:

• Film distribution firms
• Pubs and bars
• Machinery manufacturing

However, this was offset by declines in:

• Computer programming
• Publishing
• Car sales

In the UK construction sector, new private housing projects increased in late 2024. However, spending on home repairs and maintenance declined, suggesting that homeowners were cutting back on non-essential expenses.

Chancellor Rachel Reeves Responds to UK Economic Data

Chancellor Rachel Reeves acknowledged that the UK economy still faces challenges, stating:

"It's not possible to turn around more than a decade of poor economic performance in just a few months, but we are doing what is necessary to bring stability."

She reiterated the government's commitment to boosting disposable income and emphasized that borrowing and debt reduction remain non-negotiable—despite reports suggesting that the Office for Budget Responsibility had lowered its UK growth forecast.

Opposition Criticizes Economic Policies

Shadow Chancellor Mel Stride blamed Reeves’s Budget for "killing UK growth", arguing that rising taxes were damaging business confidence.

"People are already paying for her choices with soaring taxes, job losses, and declining business investment," he said.

Liberal Democrat Treasury spokesperson Daisy Cooper also criticized the government’s economic policies, stating that small businesses—the backbone of the UK economy—would be hit hard by Reeves's "jobs tax."

Source: bbc.co.uk, ChatGPT