The UK economy inched up slightly in the last quarter of 2024, ahead of market expectations. However, the country is still dealing with slower growth than some of its other G7 peers.
The UK economy grew by 0.1% in the last quarter of 2024, according to the Office for National Statistics. The figure was This was above analyst expectations of a -0.1% fall and better than the previous quarter, which was stagnant.
The figure, although small, is cheering news for the UK’s Labour government, which is insisting that its focus remains on economic growth. However, the UK economy is still dealing with relatively slower growth than some of its other G7 counterparts.
The fourth quarter’s growth was mainly driven by a boost in the services sector, which grew by 0.2%, as well as the building industry, which rose by 0.5%.
On the other hand, production dropped for the fifth consecutive quarter, falling by 0.8%, mainly because of a 0.7% slowdown in manufacturing. The pharmaceuticals, transport equipment, quarrying and mining sectors also experienced declines.
Similarly, exports fell 2.5%, although a 2.1% increase in imports – primarily boosted by non-monetary gold – went some way towards offsetting the fall.
On an annual basis, the UK economy advanced 1.4% in the fourth quarter of 2024, up from 1% in the third quarter, as well as market estimates of 1.1%. This was the quickest GDP growth since the fourth quarter of 2022, mainly supported by a rise in household consumption and government spending.
Market and analyst reactions to UK GDP results
The FTSE 100 fell 0.82% on Thursday morning, following the release of the UK GDP figures, with the FTSE 250 also dropping 0.20%.
Kyle Chapman, FX markets analyst at Ballinger Group, said in an email note: “The UK expanded by a stronger-than-expected 0.4% in December, lifting the Q4 growth figure into positive territory rather than the contraction expected by the market consensus. A surge in the services sector provided most of the boost.
“No doubt Reeves will be taking a sigh of relief here – a shrinking economy is not an ideal headline for a government whose overarching goal is higher growth – but the UK is not out of the woods yet.
“Which side of zero that the growth figures land on is less important than the fact that the economy is flatlining. Low growth and high rates are a toxic mix for the Treasury. Today’s surprise will not change the fact that the OBR projections in March are going to point to evaporated fiscal headroom. That means difficult decisions are still to come, and businesses did not take the last ones very well.”
David Morrison, senior market analyst at financial services provider Trade Nation, also said in an email note: “This better-than-expected number has come as a relief both to financial markets and the government. The last thing needed at this stage was a quarterly dip into negative territory.
“Nevertheless, the UK economy continues to trundle along with little evidence of growth, although the month-on-month data is encouraging. Sterling jumped on the news, while the pre-market FTSE 100 was holding near all-time highs.”
Danni Hewson, head of financial analysis at AJ Bell, also pointed out in an email note: “Even this miniscule scrap of growth will be a relief for the Treasury, which could have been dealing with a very different set of headlines this morning.
“The economy is hardly in good health and another quarter bumping along the bottom is not the growth the government has promised. In fact when you compare the UK economy with that of other G7 countries the UK wasn’t at the front of the pack in 2024, it was stuck somewhere in the middle with Germany and Italy bringing up the rear.
“There’s always the possibility that these figures could be revised but right now it looks like the UK has dodged the confidence sapping label of a technical recession. After a bruising Budget and a halving of growth forecasts by the Bank of England, any bit of good news should be celebrated, and the government has shifted tack over the last month or so with backing for big infrastructure projects like Heathrow’s third runway putting meat on the bones of the chancellor’s growth plans.”
However, Hewson highlighted that although interest rates are dropping, it would still take some time for this decrease to trickle down to households and be reflected in consumer spending.
UK experiences trade surplus with US in 2024
In 2024, the UK recorded a trade surplus with the US, including Puerto Rico, exporting £58.7bn (€70.4bn) worth of goods, while imports came up to £56.6bn (€67.8bn). This has increased hopes that the UK may be able to sidestep any potential tariff actions from the US.
The top most imported goods from the US were crude oil, mechanical power generators, refined oil, medicinal and pharmaceutical products and aircrafts. On the other hand, some of the top most exported products to the US were cars and scientific instruments.
Samuel Edwards, head of dealing at global financial services firm Ebury, said in an email note: “Analysis of today’s trade data shows that 2024 saw the UK holding a £2.1 billion (€2.5bn) trade in goods surplus with the US. The small size of the surplus, especially in comparison with many of the United States’ trading partners, is likely to support hopes from the Government that the UK can minimise or avoid any potential tariffs imposed by President Trump.
“We are already seeing the impacts of the 25% steel and aluminium tariffs on our client base, forcing difficult conversations about staff and production costs. Any further measures could see the pain spread into other key sectors in the UK at a time of economic uncertainty and stuttering economic growth.
“In this fraught environment, we would urge businesses to consider implementing robust hedging strategies to minimise their FX risk exposure, and to ensure ready access to finance to weather any storms, whether they be domestic or from overseas.”
