UK Economy Stumbles in November, GDP Growth Slows to 0.1%

The UK economy eked out a meager 0.1% growth in November, falling short of analysts' expectations and raising concerns about the country's economic outlook. This sluggish growth rate, the lowest since the beginning of 2021, highlights the challenges facing the UK as it navigates a complex global landscape. The slowdown in GDP growth can be attributed to several factors, including a weakening services sector, declining consumer confidence, and rising employer costs.

Weakening Services Sector

The services sector, which accounts for about 80% of the UK's GDP, saw a marginal growth of 0.1% in Q3 2024. This slowdown was reflected in the November S&P UK PMI Services Index, which showed its lowest reading since August, indicating a marked loss of momentum. Service providers reported near-stagnant activity, workforce reductions, and declining business optimism, with growth expectations falling to their weakest since late 2022 (Source: KPMG Economic Outlook).



Declining Consumer Confidence

Consumer confidence, a bellwether for spending and economic activity, has come under pressure in recent months. The GfK Consumer Confidence Index dropped from -13 in August to -21 by October, marking a 7-month low. Although there was a modest improvement in November, rising to -18, concerns about household spending remain due to the broader economic environment (Source: KPMG Economic Outlook).



Rising Employer Costs

The new government's tax package, which includes increased National Insurance contributions (NICs) for employers, is set to raise labour costs. This could discourage hiring and potentially lead to reduced investment or workforce reductions, weakening consumer spending and exacerbating challenges in the labour market (Source: UK Budget Analysis).

Limited Fiscal Flexibility

The UK faces ongoing fiscal pressures, with public debt reaching 100% of GDP in August 2024. This limits the government's ability to stimulate growth through fiscal policy, as stagnant GDP growth leaves little room to offset fiscal pressures (Source: UK Economy).

Geopolitical Tensions and Trade Uncertainties

Geopolitical tensions and uncertainties about global trade dynamics, such as the potential for increased tariffs from the US, could also contribute to the UK's sluggish GDP growth. These factors can weigh on confidence and discourage investment (Source: Goldman Sachs Research).



Implications for the UK's Economic Outlook

The UK's economic growth rate of 1.7% in 2025, as projected by KPMG, has several implications for the country's economic outlook:

1. Moderate but positive growth: The growth rate of 1.7% indicates a moderate but positive economic outlook for the UK in 2025. This growth is more than double the rate of 0.8% experienced in 2024, suggesting a welcome recovery after a lackluster performance in the latter half of 2024.
2. Consumer spending boost: The projected increase in consumer spending by 1.8% in 2025 is driven by robust pay growth and lower interest rates, which provide less incentive for saving. This increase in disposable incomes could translate into higher consumer spending, further boosting economic growth.
3. Inflation concerns: While the growth rate is positive, it comes with the risk of higher and more persistent inflation. Businesses may pass on the cost of tax rises as they enjoy a temporary glut of demand, leading to inflation remaining above the Bank of England's 2% target until 2027.
4. Productivity and labor force participation challenges: The short-term pick-up in growth is unlikely to be sustained, as the economy continues to be constrained by a weak pace of productivity growth and shortfalls in labor force participation. Addressing these structural issues will be crucial for long-term economic growth.
5. Policy implications: The UK government's Modern Industrial Strategy and the National Wealth Fund (NWF) will play a critical role in determining whether public investment can translate into sustained economic growth. Effective implementation of these initiatives will be essential for maintaining the positive economic outlook.
6. Monetary policy considerations: The Bank of England is expected to continue rate cuts in 2025, ending the year with a rate of 4%. This loosening monetary policy stance aims to support economic growth while managing inflationary pressures.
7. Trade frictions and uncertainties: The incoming US administration's willingness to use tariffs to achieve policy goals could escalate trade frictions, influencing the global economic outlook for 2025 and 2026. A flare-up in trade frictions could lower UK GDP by 0.4%, with an even larger hit to more export-oriented economies in Europe.

In conclusion, the UK economy's sluggish growth in November, with GDP expanding by just 0.1%, underscores the challenges facing the country as it navigates a complex global landscape. Addressing the underlying issues, such as a weakening services sector, declining consumer confidence, and rising employer costs, will be crucial for the UK to maintain a positive economic outlook in 2025.