14 March 2025
If you are covering the latest UK GDP data, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“The UK economy has had a disappointing start to 2025, with monthly real GDP contracting by 0.1% in January largely due to a 0.9% fall in production output. This worse than expected figure follows what had been a surprise 0.4% uptick in growth in December 2024, driven by strength in the services sector. Propped up by the stronger number at the end of last year, real GDP is estimated to have grown by 0.2% in the three months to January 2025.
“On a monthly basis, economic growth can appear to be quite choppy, but the bigger picture shows a stagnant economy. Talks of trade wars are now consistently making headlines, and this is likely to be unhelpful as far as UK consumer confidence is concerned. The government will be pinning its hopes on consumption holding up in the first quarter of the year and that the economy avoids slipping into recession further down the line.
“The Spring Statement is now less than two weeks away, and it is becoming increasingly clear that Chancellor Rachel Reeves finds herself in a very difficult position. The Bank of England recently halved its forecast for economic growth from 1.5% to 0.75% in 2025. Given fiscal headroom is highly sensitive to changes in growth expectations, the previous £9.9bn of headroom will almost certainly no longer be available. The government is between a rock and a hard place given its repeated assurances that it will not raise taxes for working people. The alternative is to cut spending elsewhere and take from what are already stretched resources.
“Today’s figures also provide the last snapshot of the economy before the Bank of England’s interest rate decision next week. While the economy is somewhat reliant on interest rate cuts to shore up consumer confidence, the recent higher than expected rise in inflation means the likelihood of a further rate cut from the Bank remains fairly slim given it will be wary of cutting too much too quickly.
“With hope, the UK economy should see some improvement as we move through 2025, but the impacts of US tariffs are only just beginning to unfold, so we will be wading through a sea of uncertainty for some time yet.”
