Underlying Weakness
On February 13, 2025, the Office for National Statistics (ONS) released the latest figures for UK economic growth, revealing a surprising uptick in GDP for the final quarter of 2024. Despite exceeding expectations, the data also highlighted persistent challenges, including negative growth per head and a reliance on government spending to drive the year-end increase. This article delves into the numbers, compares them to forecasts, and examines the broader economic context.
A Positive Surprise in Q4 2024
The UK economy grew by 0.1% in the fourth quarter of 2024, surpassing the consensus expectation of a 0.1% contraction. On a year-on-year basis, GDP rose by 1.4%, beating forecasts of 1.1% and improving on the previous quarter's 0.9%. Monthly data for December 2024 further underscored this positive trend, with GDP increasing by 0.4%, well above the anticipated 0.1%.
These figures, reported by sources such as PiQSuite and financialjuice on X, indicate a broad-based beat to expectations, providing a glimmer of optimism amid a challenging economic landscape. Commentators like Ed Conway from Sky News emphasised that, despite the growth being the "weakest possible," it marked a significant divergence from anticipated shrinkage.
Negative Growth Per Head: A Sobering Reality
However, the headline growth figures mask a more troubling trend: GDP per capita, a key measure of individual economic well-being, declined by 0.1% in Q4 2024. On an annual basis, per capita GDP grew by 0.4%, but this modest increase does little to offset the quarterly contraction. Frencheconomics noted on X that "flat growth in H2 2024 is the story," with per capita declines underscoring the uneven recovery across the population.
This negative per capita growth reflects a broader challenge for the UK economy—while aggregate output may be rising, the benefits are not being felt equally on a per-person basis. Factors such as population growth and uneven income distribution could be contributing to this disparity, raising questions about the inclusivity of the recovery.
A Tale of Two Halves: 2024's Economic Trajectory
The 2024 growth narrative can be split into two distinct phases. The year began strongly, with GDP expanding by 0.6% in Q1 and 0.4% in Q2, as reported by Ben Obese-Jecty on X. This early momentum was driven by robust consumer spending and a recovery in business investment, bolstered by falling inflation and anticipated interest rate cuts, according to the EY ITEM Club Summer Forecast.
However, the second half of the year saw a marked slowdown, with GDP growth stalling at 0.0% in Q3 and only a modest 0.1% increase in Q4. The British Chambers of Commerce (BCC) and the Institute for Fiscal Studies (IFS) had warned of this "tailing off," attributing it to persistent inflationary pressures, global trade uncertainties, and a cautious consumer base reducing spending.
Government Spending: The Year-End Lifeline
The small uptick in Q4 growth was heavily reliant on government spending, a factor highlighted by various analysts, including KPMG UK and the EY ITEM Club Winter Forecast. Measures such as public sector pay deals and increased government consumption, as noted by Goldman Sachs, provided a temporary boost to demand. The Autumn Budget, which was more expansionary than expected, further supported this late-year growth, though it also raised concerns about inflationary pressures and fiscal sustainability.
Critics, including the BCC, argue that this reliance on public expenditure masks underlying weaknesses in private sector activity. Household consumption, while expected to rise in 2025, remained subdued in late 2024, with consumers prioritising savings over spending. Business investment, although showing signs of recovery, was revised down to a modest 0.3% growth for the year, according to the BCC Quarterly Economic Forecast.
Looking Ahead: 2025 and Beyond
Despite the positive Q4 figures, the UK economy faces significant headwinds in 2025. Forecasts from the EY ITEM Club and Goldman Sachs predict GDP growth of around 1% to 1.2% for the year, below the Bank of England's 1.5% projection. The OECD recently upgraded its 2025 forecast to 1.7%, buoyed by expected public spending increases, but risks such as geopolitical tensions and trade uncertainties remain.
Inflation is projected to hover between 2.5% and 3%, driven by budget-related cost increases and public sector wage growth, as per RSM UK. The Bank of England is expected to adopt a cautious approach, with interest rates anticipated to fall gradually to around 3.75% by year-end, according to the IFS and BCC.
Conclusion: A Fragile Recovery
Today's growth figures offer a mixed picture for the UK economy. While exceeding expectations, the reliance on government spending and the decline in per capita GDP highlight the fragility of the recovery. The strong start to 2024 gave way to a lacklustre second half, and the year-end uptick, while welcome, does not fully address the structural challenges facing the economy.
As the Labour government, led by Chancellor Rachel Reeves, navigates this delicate economic landscape, it will need to balance short-term stimulus with long-term reforms. The promise of being the "fastest growing economy in the G7," as critiqued by Ben Obese-Jecty, remains elusive, with the UK trailing behind nations like the US and Canada. Addressing negative per capita growth and fostering sustainable private sector activity will be critical to ensuring that future growth translates into tangible improvements for all citizens.
Unlock Peace of Mind with Solar Protect Tax Fee Protection
Are You Ready for an HMRC Enquiry? Every
year, thousands of businesses, sole traders, and individuals face the
daunting prospect of an HMRC tax investigation. Don't let this be you
without protection!
Introducing Solar Protect Tax Investigation Insurance:
- Market-Leading Coverage: Tailored for businesses, sole traders, and individuals, ensuring you're covered no matter your tax situation.
- Zero Excess: No out-of-pocket expenses for you. We cover your accountant's fees in full.
- Up to £100,000 Reimbursement: If HMRC knocks, rest assured your defence costs are taken care of up to £100,000.
What Solar Protect Does for You:
- Robust Defence: Empower your accountant to handle all HMRC correspondence, meetings, and appeals without financial worry.
- Full Support: From dealing with initial letters to attending tribunals, your tax return agent can focus on defending you, not on the cost.
- Peace of Mind: With Solar Protect, sleep easy knowing your accountant can fight for your rights without hesitation, thanks to our comprehensive coverage.
Why Risk It? HMRC enquiries can be stressful and costly. With Solar Protect, you're not just buying insurance; you're securing your financial peace of mind.
Get Protected Today! Don’t
wait for the letter to arrive. Secure your Solar Protect Tax
Investigation Insurance now and ensure your accountant can robustly
defend you against any HMRC scrutiny.
Click Here to Safeguard Your Business and Peace of Mind!