UK Economy Surprises with 0.1% Growth in Q4, Beating Expectations

The UK economy surprised analysts in the fourth quarter of 2024, growing by 0.1% compared to the previous quarter, according to the Office for National Statistics (ONS). This unexpected growth comes after a sluggish third quarter, where the economy showed no growth. The services sector, which accounts for around 80% of the UK's economic output, grew by 0.1% in the fourth quarter, offsetting falls in the production and construction sectors.

The ONS also reported that real households' disposable income (RHDI) grew by 1.3% in the fourth quarter, down from 1.6% in the previous quarter. The household saving ratio stood at 10.0% in the latest quarter, up from 8.9% in the previous quarter. This indicates that households had the financial capacity to spend more, contributing to the overall economic growth.



Investec Chief Economist Philip Shaw commented on the growth, stating, "The UK economy has shown resilience in the face of headwinds, with growth in the fourth quarter beating expectations. However, the outlook remains uncertain, with potential risks from US trade tariffs and the impact of the autumn budget on economic growth."

The UK's trading arrangements with the US will be a major focus in the coming year. Uncertainty surrounding potential tariffs from the US administration could weigh on confidence and reduce growth in the UK economy. Additionally, the UK's budget is expected to consolidate in 2025, which could lead to a slowdown in growth in the second half of the year.

The UK economy's unexpected growth in the fourth quarter was driven by strong consumer spending, expansionary fiscal policy, and a resilient services sector. However, the sustainability of this momentum is uncertain due to factors such as uncertainty around trading arrangements with the US, a less expansionary budget, and the long-term effects of proposed changes to the planning system for housing and development.

Investors should monitor the progress of these reforms and assess their potential impact on the economy and specific sectors. Additionally, investors should stay informed about developments in US-UK trade relations and assess the potential impact on their portfolios. By staying informed and adjusting their portfolios accordingly, investors can navigate the challenges posed by the UK economy's uncertain outlook.