The UK economy narrowly avoided a recession in the fourth quarter of 2024, posting a modest 0.1% GDP growth. This positive surprise, exceeding analyst expectations of a 0.1% contraction, kept the UK out of a technical recession, defined as two consecutive quarters of negative growth. Despite this encouraging economic news, the FTSE 100 underperformed compared to its European counterparts.
The unexpected growth was driven by a 0.2% increase in the services sector and a 0.5% expansion in construction. However, these gains were partially offset by a 0.8% decline in production output. December saw a particularly strong performance, with GDP expanding by 0.4%, fueled by positive contributions from wholesale, film distribution, pubs and bars, and machinery manufacturing.
While the UK dodged a recession, economic concerns remain. GDP per capita, a measure of average living standards, fell by 0.1% in the fourth quarter. Economists point to higher business taxes and global economic uncertainty as contributing factors to the sluggish growth. Chancellor Rachel Reeves acknowledged the challenges, stating that reversing “more than a decade of poor economic performance” will take time.
Despite the positive GDP figures, the FTSE 100 index declined by 0.7% in early trading. In contrast, major European indices showed gains:
- Germany’s DAX: +0.8%
- France’s CAC 40: +0.8%
- Pan-European STOXX 600: +0.3%
This divergence highlights the complex interplay between economic data and market sentiment. While the UK avoided recession, investors may be focusing on longer-term challenges and global economic headwinds. Futures markets indicated a negative opening for Wall Street, further reflecting investor caution. The pound weakened against the US dollar, trading at 1.2476, down 0.3%.
Corporate News and Market Updates
Several significant corporate developments also impacted market activity:
Nissan Cuts Profit Forecast: Nissan reported a sharp drop in third-quarter profit and lowered its full-year outlook for the third time. The company plans significant cost-cutting measures and restructuring efforts.
Honda-Nissan Merger Talks Collapse: Merger talks between Honda and Nissan have ended without a deal. The planned alliance aimed to create a global automotive powerhouse but ultimately failed due to disagreements over the terms of the merger.
Barclays Announces Share Buyback: Barclays announced a £1 billion share buyback program after reporting a 24% rise in full-year profits. The bank also declared a full-year dividend of 5.5p per share.
Market Outlook
Traders are reassessing their expectations for UK interest rate cuts in light of the positive GDP data. While cuts are still anticipated, the timing may be pushed back. The market is now pricing in a potential rate reduction to 4.25% as late as June.
The UK’s economic performance continues to be closely watched by investors. While avoiding a recession is a positive sign, challenges remain. The interplay between domestic economic data, global market trends, and corporate developments will continue to shape market sentiment and investment decisions in the coming months. The upcoming IEA oil market report and US weekly jobless claims data will provide further insights into the global economic outlook.
Conclusion
The UK’s unexpected economic growth in the fourth quarter of 2024 provides a glimmer of hope amidst a challenging global landscape. However, underlying economic weaknesses persist, and the FTSE 100’s underperformance underscores lingering investor concerns. As the UK navigates these complexities, Hyperloop Capital Insights will continue to provide in-depth analysis and insights to help investors make informed decisions.
