Reeves to meet regulators

Government borrowing costs dip as stocks continue to rally

Shadow chancellor Mel Stride said UK growth in the first half of last year, before Labour was elected, ranked as the fastest in the G7, and claimed Rachel Reeves was “killing investment and jobs”.
He added:

This is the third month in a row of disappointing growth figures. The chancellor seems content with burying her head in the sand and blaming the previous government, but this is a crisis made in Downing Street. We need an urgent change of course.

Simon Pittaway, senior economist at the Resolution Foundation, said the GDP data was disappointing, raising fears of stagnation, despite a welcome return to growth.

In recent years the UK has been a growth rollercoaster, with a recession in late 2023 followed by a bounce back in early 2024. But its longer-term record is one of economic stagnation, and that is where Britain risks returning to.

The paltry GDP growth late last year reinforces the need for the government’s economic plans to start bearing fruit.

Isaac Stell, investment manager at Wealth Club said:

The UK economy spluttered back to life in November with growth of 0.1%, following two months of negative growth in September and October. The small amount of growth achieved in November will likely take further heat off a chancellor that has been under significant amounts of pressure over the last few weeks.

The latest figures will be welcomed by the government, however small they are, and when coupled with yesterday’s inflation undershoot provide a small glimmer of hope. However, Reeves and co will not want to hang out the bunting just yet as challenges certainly remain in the form of upside surprises to inflation and businesses having to shoulder significant rises in national insurance contributions come April. However, with an economy that is far from firing on all cylinders, and inflation, for the moment moderating, much needed rate cuts from the Bank of England look like a real possibility.

Britain’s economy grew for the first time in three months, but eked out just 0.1% growth.

The economy grew more slowly than expected in November, giving the Bank of England more room to cut interest rates this year.

Interest rate expectations shifted yesterday, after the surprise drop in inflation.

Markets see the probability of an interest rate cut in February, at the Bank’s next meeting, at 83%, and have fully priced in two reductions by the end of the year.

The pound has slipped by 0.2% to $1.2213 today.

Barret Kupelian, chief economist at PwC, said:

We know that in net terms growth remained flat for the three months to November therefore we are clearly far off from a state where the economy has reached ‘escape velocity’ and grows on a sustained basis.

Given the latest inflation reading yesterday, weaker than expected growth could help pave the way for faster rate cuts by the Bank of England. This could be a helpful tailwind to the economy at a time when the international outlook becomes more unpredictable.

In November alone, services output was boosted by the hotel, restaurants, cafes and bars sector, where activity bounced back by 2% following October’s 1.2% drop.

Computer programming, consultancy and related activities were also up, by 1%, while telecommunications posted 1.2% growth. Wholesalers also contributed to the growth in services.

Within production, manufacturing fell by 0.3% while mining and quarrying was down 1.5% and water supply, sewage and waste management dropped by 0.3%.

The 0.7% decline in production in the three months to November was mainly because of a 1% fall in manufacturing, the ONS said.

Human health and social work activities was the largest driver behind the rise in services output in the three months to November, increasing by 1.3% from the three months to August, when a strike by NHS junior doctors led to the cancellation of 61,989 acute inpatient and outpatient appointments, according to NHS England.

The next largest contributor was professional, scientific and technical activities where output increased by 0.6%.

Services output grew by 0.1% in November after falling by 0.1% in October, revised lower from no growth, but showed no growth in the three months to November, the ONS said.

Production output fell by 0.4%, following October’s fall of 0.6%. It was down by 0.7% in the three months to November, driven by a decline in manufacturing.

Construction output grew by 0.4% in November, following a fall of 0.3% in October (revised up from a fall of 0.4%); construction also grew by 0.2% in the three months to November.

The chancellor, Rachel Reeves, said:

I am determined to go further and faster to kickstart economic growth, which is the number one priority in our Plan for Change.

That means generating investment, driving reform and a relentless commitment to root out waste in public spending, and today I will be pressing regulators on what more they can do to deliver growth.

After fourteen years of economic stagnation, this government’s number one mission is to grow our economy. I will fight every day to deliver that growth and put more money into working people’s pockets.

UK economy returns to growth in November

Housing sales have picked up and prices are now rising in every region of the UK, according to a survey.

A net balance of +7% of surveyors reported higher sales growth in December, up from +1% in November, according to the Royal Institution of Chartered Surveyors. Enquiries from new buyers were also up, though at a slower rate than in November and October.

New instructions, which measures properties placed for sale, saw a bounce, ahead of stamp duty changes in March, with a net balance of +14% reported, marking the sixth consecutive month of increases in houses being listed for sale.

House prices are now going up in every region of the UK. Northern Ireland and Scotland report the strongest price growth currently.

In the lettings market, tenant demand has stabilised. Surveyors and estate agents expect further rent rises (+37%), as more landlords are selling up (net balance +37% from +29% in November) leading to a lack of properties for renters. So while demand is broadly flat, supply is diminished, leading to a lack of available property to rent and price rises.

RICS chief economist, Simon Rubinsohn, said:

The latest results from the RICS Residential Market Survey points to a further improvement in sentiment in the housing market despite concerns about the potential impact of rising bond yields on borrowing costs. Buyer enquiries rose once again, albeit at a slower pace than in November, and the headline price indicator also moved higher.

More significantly, the signals from the survey around expectations over the next twelve months also remain solidly positive for now. However, the resilience of the uplift in market mood could be tested if the mortgage rates do begin to climb in a material way over the coming months. That, critically, would also be a concern for developers who will want to see a solid market as a backdrop for ramping up housebuilding to help meet the government’s ambitious 1.5 million homes target for this parliament.

An unexpected drop in December inflation, announced yesterday, has taken some of the pressure off Rachel Reeves, the chancellor, raising expectations for a Bank of England rate cut next month, and reducing UK borrowing costs.

After a tough week for the government on the economy, official figures showed inflation unexpectedly cooled in December to 2.5%, down from 2.6% in the previous month, meaning prices rose at a slower rate.

Lifting some of the pressure on the chancellor as she sought to talk up Labour’s growth agenda, the latest snapshot sent the yield – in effect the interest rate – on UK government bonds tumbling at the fastest rate since 2023.

With 10-year gilt yields falling by almost 0.2 percentage points to about 4.7%, the sharp decline erased nearly all of the increase of the past seven days, when turmoil in the bond market had forced Reeves to contemplate spending cuts to meet her fiscal rules.

Introduction: UK economy forecast to have returned to growth in November