The UK economy narrowly avoided a recession in the final quarter of 2024, registering a marginal 0.1% growth in gross domestic product (GDP), according to preliminary data released by the Office for National Statistics (ONS). This fragile growth exceeded analysts’ expectations of a 0.1% contraction, preventing the UK from entering a technical recession, defined as two consecutive quarters of negative growth. The positive result follows a stagnant 0% growth in the third quarter.
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A Fragile Recovery: Sector Performance and Underlying Weakness
While technically avoiding a recession, the UK’s economic performance remains precarious. The slim 0.1% growth margin highlights the vulnerability of the economy to potential downward revisions and future shocks.
A closer look at sector performance reveals a mixed picture. The services sector, a significant contributor to the UK economy, experienced modest growth of 0.2%. The construction sector expanded by a more robust 0.5%. However, the manufacturing sector contracted, with production output declining by 0.8%. This contraction raises concerns about the overall health of the industrial sector.
December’s monthly GDP figures offered a slightly brighter outlook, with a better-than-expected expansion of 0.4%, contributing to the overall positive quarterly growth. This monthly performance was driven by strong activity in sectors such as wholesale, film distribution, pubs and bars, machinery manufacturing, and pharmaceuticals. However, these gains were partially offset by weaknesses in computer programming, publishing, and car sales.
Despite the overall positive GDP growth, real GDP per capita, which accounts for population changes, fell by 0.1% in the fourth quarter, indicating a potential decline in individual economic well-being.
Economic Outlook: Challenges and Uncertainties
Chancellor Rachel Reeves acknowledged the long-term economic challenges facing working people and emphasized the government’s commitment to improving living standards and boosting economic growth through investments in infrastructure and business development.
However, significant economic headwinds persist. The Bank of England recently revised its 2025 inflation expectations upward to 3.7% from the current 2.5% and significantly downgraded its growth forecast for the year to a mere 0.75%, down from 1.5% just three months prior. This pessimistic outlook reflects concerns about persistent inflation and potential global economic slowdown.
The Office for Budget Responsibility (OBR) is also anticipated to lower its growth forecasts in the upcoming spring statement, potentially impacting tax revenues and exacerbating fiscal pressures on the government.
Global Context: UK Outperforms European Peers
Despite the subdued outlook, the UK’s 0.75% growth projection remains the highest among G7 European nations. Germany experienced a 0.2% contraction in Q4 2024, while France’s economy shrank by 0.1%. Both Italy and the Eurozone as a whole recorded zero growth.
Experts caution that while the UK avoided a technical recession, the underlying economic vulnerabilities remain. The OBR’s anticipated downgrade in growth forecasts and persistent inflationary pressures underscore the challenges ahead. The UK economy continues to navigate a complex and uncertain landscape. Sustained growth will depend on effectively managing these challenges and fostering a more resilient and dynamic economy.
