Business

UK economy gains in November, leaving open risk of recession

British economy sees modest rebound

The UK economy showed modest growth in November. Photograph: Peter Byrne/PA Wire

Tom Rees
Fri Jan 12 2024 - 08:00

The UK economy enjoyed a modest rebound in November, leaving the prospect of a technical recession on a knife edge.

Gross domestic product rose 0.3 per cent in November, bouncing back from a drop of the same scale in October, the Office for National Statistics said Friday. Economists had expected a 0.2 per cent increase.

The figures mean the UK would require a flat December to avoid a contraction for the full quarter, and that month was held back by wet weather and strikes by doctors. It leaves the economy sputtering near stagnation at a time Prime Minister Rishi Sunak is hoping for sunnier news to bolster his chances in the next election.

“The lacklustre performance of the economy in November suggests the UK may well have slipped into a recession during the second half of 2023,” said Ben Jones, lead economist at the CBI employers group.

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Sunak has overseen a sluggish economy since taking office in 2022, despite making growth one of his key pledges. His Conservative Party is trailing the Labour opposition and must call a vote by early 2025 at the latest.

All else being equal, the economy will shrink 0.1 per cent in the fourth quarter if GDP falls by 0.02 per cent or more in December, the ONS said. Zero growth in December would leave the fourth quarter unchanged.

While persistent inflation and high interest rates weighed on the economy last year, the outlook for 2024 is brightening. Some economists have upgraded their growth forecasts off the back of lower-than-expected inflation figures, gains in real wages and expectations that the Bank of England start cutting interest rate this Spring. Survey data has also pointed to some pick up in economic momentum in recent months.

Output slipped 0.1 per cent in the third quarter, and the economy needs to eek out growth in the final three months of the year to avoid two consecutive quarterly contractions, which define a recession.

While persistent inflation and high interest rates weighed on the economy last year, the outlook for 2024 is brightening. Some economists have upgraded their growth forecasts off the back of lower-than-expected inflation figures, growth in real wages and expectations that the Bank of England will pivot to interest rate cuts as soon as the Spring. Survey data has also pointed to some pick up in economic momentum in recent months.

Markets are leaning toward the first rate reduction arriving in May as the BOE shifts its attention away from high inflation to propping up a stagnant economy. Investors are betting on around four more cuts by the end of 2024.

The BOE has stuck by its higher for longer messaging despite market bets on a cut being boosted by inflation slipping below 4 per cent in the latest data for November. In recent days, economists at Deutsche Bank and Oxford Economics have said that inflation could be back at the BOE’s 2 per cent target by the Spring. – Bloomberg

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