Unlock the Editor’s Digest totally free
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
The UK economic system rebounded greater than anticipated in November pushed by progress within the providers sector, in line with official figures that ease fears of a technical recession.
Gross home product grew 0.3 per cent between October and November, following a 0.3 per cent contraction between September and October, the Workplace for Nationwide Statistics mentioned on Friday. That was stronger than the 0.2 per cent growth forecast by economists polled by Reuters.
Grant Fitzner, ONS chief economist, mentioned the rebound in GDP had been “led by providers with retail, automobile leasing and laptop video games corporations all having a buoyant month”. Sturdy Black Friday gross sales and fewer strikes additionally helped.
After the UK economic system marginally contracted within the three months to September, Friday’s knowledge raises hopes it should keep away from shrinking within the remaining quarter of 2023. Some economists outline two consecutive quarters of falling GDP as a technical recession.
The pound was little modified in opposition to the greenback after the info launch, buying and selling down 0.04 per cent at $1.2753.
Ruth Gregory, deputy chief UK economist at analysis firm Capital Economics, mentioned the rebound in GDP in November “most likely means the economic system escaped a recession in 2023”.
Nevertheless, Fitzner warned that “the longer-term image stays considered one of an economic system that has proven little progress over the past yr”.
The economic system largely stagnated via final yr, reflecting the impression of excessive costs and rates of interest on family funds and enterprise exercise.
In November, output was no increased than at the beginning of the yr and was solely up 0.2 per cent from the identical month in 2022, laying naked the challenges for Prime Minister Rishi Sunak to “develop the economic system” forward of the election.
Responding to the figures, chancellor Jeremy Hunt mentioned: “We now have seen that superior economies with decrease taxes have grown extra quickly, so our tax cuts for companies and staff put the UK in a robust place for progress into the longer term.”
However Rachel Reeves, Labour’s shadow chancellor, mentioned: “The Conservatives have presided over 14 years of financial failure that has left working individuals worse off. A decade of low financial progress has left Britain with the very best tax burden in 70 years.”
The Financial institution of England expects no progress within the remaining quarter of 2023 and that the economic system shall be “broadly flat” over coming quarters. However some economists are more and more optimistic concerning the UK’s financial outlook as rate of interest expectations have fallen on decrease inflation.
Inflation was working at 3.9 per cent in November, down from 4.6 per cent the earlier month and nicely beneath 11.1 per cent in October 2022.
Gregory mentioned she anticipated the economic system to maneuver out of stagnation within the second half of 2024. “Latest large falls in market rate of interest expectations, which have lowered charges on new mortgages and created extra room for tax cuts, imply that the financial restoration might begin a bit sooner and be a bit stronger than we presently anticipate,” she mentioned.
Martin Beck, chief financial adviser to the EY Merchandise Membership consultancy, mentioned the “outlook is brightening” since, alongside decrease inflation, “current falls in wholesale fuel costs level to a sizeable reduce in family power payments within the spring”.
He added that “potential help to the general public funds from decrease rates of interest”, that are presently at 5.25 per cent, had elevated the possibilities of additional tax cuts in Hunt’s spring Finances on March 6.
Based on the ONS, providers output grew by 0.4 per cent in November and was the principle contributor to the month-to-month progress in GDP. Sturdy progress in data and communication, retail commerce, {and professional} and well being providers greater than offset the contraction in schooling and monetary providers.
The ONS mentioned fewer strikes in contrast with earlier months might have contributed to the rise in month-to-month progress within the well being, transport and movie manufacturing sectors.
Output in consumer-facing providers, similar to eating places and journey businesses, grew by 0.6 per cent in November, following 4 consecutive month-to-month falls, however remained 5.8 per cent beneath pre-pandemic ranges.
That is in distinction with all different providers, which had been 7.5 per cent above their pre-February 2020 ranges.
Manufacturing output grew by 0.3 per cent in November, pushed by prescription drugs. The development sector shrank by 0.2 per cent, following a 0.4 per cent contraction in October, on the again of unhealthy climate and excessive rates of interest.