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The UK economy unexpectedly grew 0.1 per cent in the fourth quarter, in a modest boost for Labour as it seeks to fulfil its pledges to re-energise the economy.
The GDP figure for the final three months of the year from the Office for National Statistics marked an increase on the zero growth in the quarter that ended in September, but is still consistent with an economy that is struggling to gain momentum.
Economists had forecast a 0.1 per cent fourth-quarter contraction, according to a poll from Reuters.
The figures were lifted by a strong performance in December, when GDP growth expanded 0.4 per cent from the previous month, driven by the UK’s dominant services sector.
The pound strengthened after the data release on Thursday. It was up 0.7 per cent against the dollar at $1.252 by late afternoon trading, having been helped by US inflation data.
Chancellor Rachel Reeves has vowed to make growth the government’s chief mission, throwing her support behind projects including a third runway at London’s Heathrow airport and transport links between Oxford and Cambridge.
But the economy has repeatedly disappointed since Labour took power, largely stagnating in the second half of last year. Real GDP per head was estimated to have fallen 0.1 per cent in the fourth quarter, the ONS said.
The latest data capped a “disappointing year for growth”, said Hailey Low, an economist at the National Institute of Economic and Social Research.
“Low business and consumer confidence suggest that 2025 starts on shaky ground, with weak investment and cautious consumer spending hindering momentum,” she added.
Over the whole of 2024, the economy expanded 0.9 per cent, the ONS said, a modest improvement on an expansion of 0.4 per cent the previous year.
However, the first half of the year was stronger than the second, and the annual figure fell short of predictions in October by the Office for Budget Responsibility, the UK fiscal watchdog.
Annual growth was also far below that recorded in the US, where GDP expanded 2.8 per cent in 2024.
Reeves is braced for a tough fiscal outlook from the OBR next month, in part because of the poor performance of the economy.
The watchdog is expected to cut its growth forecasts in the upcoming Spring Statement, hitting tax revenues and adding to the fiscal pressures facing the chancellor.
The OBR told Reeves last week that the headroom she previously had against her key budget rule had been wiped out by factors including poor economic data.
Economists said the relatively weak fourth-quarter performance may partly reflect downbeat corporate sentiment following Reeves’ first Budget, in which she announced higher employer national insurance contributions.
Thursday’s figures showed a 3.2 per cent drop in business investment in the fourth quarter, as well as a drag from weak trade performance.
The modest quarterly expansion was propelled by higher services and construction activity, while industrial production fell for the fifth consecutive quarter.
Economists said the latest figures pointed to a subdued picture for 2025. “With business sentiment on the floor and employment declining, it’s hard to see private sector activity improving much in the first or second quarters,” said Paul Dales at Capital Economics. “The economy is unlikely to do more than move sideways over the next six months.”
Responding to Thursday’s GDP figures, Reeves said: “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.”
Mel Stride, the shadow chancellor, said: “The chancellor promised the fastest-growing economy in the G7, but her Budget is killing growth.”
James Smith of ING said that while the OBR had forecast 2 per cent growth this year, the UK economy may expand at just half that pace. “The lacklustre end to 2024 will only cement the loss of fiscal headroom the Treasury must now grapple with.”
Additional reporting by Ian Smith
