The UK economy grew for the first time in three months but failed to meet market expectations, raising a question mark over future interest rate cuts.
The latest GDP figures from the Office for National Statistics showed the UK grew by 0.1% in November, driven by pubs, restaurants and the construction industry, following two months of contraction.
However, the figure fell short of the 0.2% forecast.
The ONS said real GDP is estimated to have shown no growth in the three months to November 2024, compared with the three months to August 2024. Services showed no growth over the three month period, while production fell by 0.7% and construction grew by 0.2%.
Derrick Dunne, CEO of YOU Asset Management, said: “The UK economy might have returned to growth but it is at a painfully small level and below forecasts. The paltry 0.1% comes chiefly from services growth, with production declining 0.4%.
“One small note of optimism comes in the construction figures, which grew by 0.4% in November and 0.2% over three months. While this is still relatively weak, construction can be a useful indicator of what the economy is going to be doing in other areas in the future. But other than that, no one sector is surging on, suggesting there aren’t many bright spots in the economy at the moment.
“Coupling these numbers with inflation figures you’d have to be a zealous glass half full optimist to think we’re fully back on the road to prosperity. But there is an inkling that things might be levelling off rather than heading totally in the wrong direction.”
The sentiment was mirrored by Kevin Brown, savings specialist at Scottish Friendly.
Brown commented: “Although it is a welcome sign that the UK economy has recorded the first growth in three months, it appears there remains a long way to go before we see more meaningful growth. That means the economy is now just 1% larger than it was a year ago.
“And with core and services inflation still well above target, it’s starting to feel a lot like we could be in a stagflationary environment for now, something nobody wants.”
Industry commentators said the sluggish figures would make interest rate cuts more challenging.
Danni Hewson, head of financial analysis at AJ Bell, said: “At the start of last year it looked so promising as inflation cooled, businesses dusted themselves off and consumers dared to believe things would get better. And if you look hard you can see a few hardy green shoots, especially in the construction sector.
“But confidence since seems to have gone missing and that feeling is likely to persist into 2025, particularly if inflation insidiously creeps back up to uncomfortable levels which make it difficult for the Bank of England to justify rate cuts.
“The government has said it will take time to turn the ship around and stimulate growth where there was very little before, but with business confidence so low it will have to work hard to deliver tangible results quickly.”
Dunne added: “Both the Government and the Bank of England will be watching these figures closely. There’s little to suggest at the moment that rate setters should bring rate cuts to a complete halt. But factors across the Atlantic could create issues with this outlook in due course, especially if the UK starts importing dollar inflation.”
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