Economy shows surprise growth at end of 2024 – but living standards hit
The UK economy grew fractionally during the final three months of 2024, according to early official figures, which ease the immediate risk of a recession.
The Office for National Statistics (ONS) reported a 0.1% rise in gross domestic product (GDP) during the fourth quarter, with only a recovery for growth in Christmas spending and manufacturing during December coming to the rescue.
Economists had been largely expecting a contraction of 0.1% for the three month period following a zero growth reading for the previous three months to September.
Money latest: Reaction as economy shows surprise growth
The risk of shallow recession is still there, however, because the margins between contraction and growth are so tight in the data that likely future revisions may tip the balance either way.
The wider ONS figures showed that across 2024 as a whole, total GDP grew by 0.9%.
But a closely-watched measure for living standards in the economy, GDP by head of population, showed a contraction for two consecutive quarters.
The figures maintain intense pressure on the government as it has made achieving economic growth its priority for the parliament.
Its term did not begin in a way that would bolster business and consumer confidence.
Analysis: Why relief over economy may be temporary
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Starmer defends handling of economy
Prime minister Sir Keir Starmer and his chancellor were accused of an own goal last summer after warning of a tough budget ahead to bolster dire public finances.
While October’s measures were aimed at sparing pain from working people, companies argue that hikes to employer National Insurance contributions from April will knock investment, force job cuts, and impact pay rises.
Why relief over economy in Downing Street may be temporary
Yes there are all sorts of provisos. The UK economy is still flatlining. A 0.1% expansion, in one key measure, is about as close as you can get to zero.
Gross domestic product per head – a better measure of our living standards – is shrinking (indeed, it’s been shrinking for two quarters). And the UK remains far weaker than the leading G7 economy – the United States.
But even after taking all that into account, it’s hard not to conclude that the chancellor will be celebrating today’s GDP figures. After all, economists had expected the economy to shrink by 0.1% rather than growing. Thanks to a late spurt in growth in December, it actually grew.
Moreover, up until today’s figures, the profile of economic growth in the UK was frankly pretty dismal. There was zero cumulative growth since last year’s election. Now, thanks to that jump in December – an unexpected late Christmas gift for the chancellor – cumulative growth since the election is now up to 0.4%.
Of course, none of this changes the bigger economic picture. The UK economy is still stuck in a rut. The enormous growth in migration in recent years means that, once you take account of the growing population, there is considerably less income floating around for every family than there was a few years ago.
And vast swathes of the UK economy are in desperate trouble. Most notably, the industrial sectors that used to power much of the country’s growth, are contracting at a rapid rate. That is not just a UK problem – indeed, it’s shared with much of Europe. In Germany, the economy has contracted for two successive years. This deindustrialisation is one of the most significant issues facing the continent.
And that’s before one considers a few other awkward issues: the real impact of last October’s budget have yet to be felt in the economy. The Office for Budget Responsibility is widely expected to slash its growth forecasts next month, which could prompt the chancellor to further trim spending in the coming years.
Then there are other, even more profound challenges. What happens if and when the US imposes far-reaching tariffs on UK imports? How will the UK afford the dramatic increases in defence spending the White House is demanding? Now, more than ever before, it’s quite plausible that outside events cause outsize impacts on the UK economy.
In short, while today’s numbers will be a relief in Downing Street, it’s not altogether clear how long that sense of relief will last.
That backdrop is made more painful by the fact that inflation is on the increase again, with a slew of essential bills including those for water, energy and council tax all set to rise sharply in the spring too.
At the same time as the domestic difficulties, global growth is also being challenged by Donald Trump who had threatened at the time of his election victory that universal trade tariffs were imminent.
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Bank governor on “depressing” growth outlook
New projections from the Bank of England last week made for sobering reading, with inflation expectations for this year hitting 3.7% from the current 2.5%.
Growth, the forecast suggested, would come in at 0.75% for 2025.
In November, the Bank had expected a figure double that sum.
A lack of growth is a problem for chancellor Rachel Reeves as it typically hits potential tax receipts at a time when her budget rules over the public finances are already under strain.
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It emerged on Wednesday that the Treasury had ordered a leak inquiry following a Bloomberg report that updated Office for Budget Responsibility forecasts sent to ministers had downgraded UK growth expectations.
Ms Reeves said of the ONS data: “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.”
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Shadow chancellor Mel Stride responded: “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.”
Thousands of job cuts at the NHS will go ahead after the £1bn needed to fund the redundancies was approved by the Treasury.
The government had already announced its intention to slash the headcount across both NHS England and the Department of Health by around 18,000 administrative staff and managers, including on local health boards.
The move is designed to remove “unnecessary bureaucracy” and raise £1bn a year by the end of the parliament to improve services for patients by freeing up more cash for operations.
NHS England, the Department of Health and Social Care, and the Treasury had been in talks over how to pay for the £1bn one-off bill for redundancies.
It is understood the Treasury has not granted additional funding for the departures over and above the NHS’s current cash settlement, but the NHS will be permitted to overspend its budget this year to pay for redundancies, recouping the costs further down the line.
‘Every penny will be spent wisely’
Chancellor Rachel Reeves is set to make further announcements regarding the health service in the budget on 26 November.
And addressing the NHS providers’ annual conference in Manchester today, Mr Streeting is expected to say the government will be “protecting investment in the NHS”.
He will add: “I want to reassure taxpayers that every penny they are being asked to pay will be spent wisely.
“Our investment to offer more services at evenings and weekends, arm staff with modern technology, and improving staff retention is working.
“At the same time, cuts to wasteful spending on things like recruitment agencies saw productivity grow by 2.4% in the most recent figures – we are getting better bang for our buck.”
Health Secretary Wes Streeting during a visit to the NHS National Operations Centre in London earlier this year. Pic: PA
Mr Streeting’s speech is due to be given just hours after he became entrenched in rumours of a possible coup attempt against Sir Keir Starmer, whose poll ratings have plummeted ahead of what’s set to be a tough budget.
Mr Streeting’s spokesperson was forced to deny he was doing anything other than concentrating on the health service.
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He is also expected on Wednesday to give NHS leaders the go-ahead for a 50% cut to headcounts in Integrated Care Boards, which plan health services for specific regions.
They have been tasked with transforming the NHS into a neighbourhood health service – as set down in the government’s long-term plans for the NHS.
Those include abolishing NHS England, which will be brought back into the health department within two years.
Watch Wes Streeting on Mornings With Ridge And Frost from 7am on Sky News.
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