The UK economy defied expectations by posting 0.1% growth in the final quarter of 2024, according to new Office for National Statistics (ONS) data.
Analysts had predicted a contraction, but strong performances in construction, pubs, bars, and machinery manufacturing helped to keep the economy in positive territory.
In December alone, the economy grew by 0.4%, driven by a busy month for film distribution firms, hospitality, and industrial production. However, the overall picture remains fragile, with living standards slightly lower than in 2023 and concerns that the government’s April tax rises could weigh on businesses.
Despite the unexpected growth, businesses remain wary about the outlook for 2025. Employers are facing higher National Insurance costs, rising minimum wages, and reduced business rates relief, all of which could limit their ability to offer pay rises, invest, or create jobs.
The Bank of England has already halved its UK growth forecast for 2025, warning that the combination of higher employer costs, global uncertainty, and trade tariffs imposed by Donald Trump’s US administration could hold back recovery.
Paul Dales, chief UK economist at Capital Economics, said the economy was “all-but stagnating” as businesses struggled with cost pressures. He pointed to Chancellor Rachel Reeves’s Budget tax rises as a key factor dampening business confidence.
“Business sentiment is on the floor, with investment and consumer spending down. Overall, the economy is unlikely to do more than move sideways over the next six months,” he warned.
The latest figures will provide some relief for Prime Minister Sir Keir Starmer, who has made economic growth a key priority. However, a separate ONS measure, real GDP per head, showed a 0.1% decline in living standards compared to 2023.
Reeves acknowledged the long-term economic challenges, saying: “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 to the economy.”
However, opposition figures were quick to criticise the government’s handling of the economy.
Shadow Chancellor Mel Stride accused Reeves of “killing growth”, blaming her policies for rising business taxes, job losses, and plummeting confidence.
Liberal Democrat Daisy Cooper called the government’s tax plans a “complete pig’s ear”, warning they would hammer small businesses, the backbone of the economy.
While private housing construction projects boosted the economy, homeowners cut back on repairs and maintenance, reflecting household financial pressures.
Meanwhile, computer programming, publishing, and car sales saw weaker trade, balancing out the gains from manufacturing and hospitality.
With higher taxes and weaker business investment on the horizon, economic growth is expected to remain subdued. The government insists it is taking steps to “put more money in people’s pockets”, but concerns persist over whether fiscal policy is supporting or hindering recovery.
The coming months will be crucial in determining whether the UK economy can sustain its momentum or whether sluggish growth and falling living standards will dominate 2025.
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UK economy posts surprise growth at end of 2024, but concerns remain