Britain has avoided a recession after the economy unexpectedly picked up in the final three months of 2024, easing some of the pressure on Rachel Reeves after flatlining during the summer.
Figures from the Office for National Statistics show gross domestic product rose by 0.1% in the fourth quarter of 2024 – after zero growth in the previous three months – to beat the forecasts of City economists and the Bank of England for a decline of 0.1%.
The latest snapshot will provide a shot in the arm for Labour after the chancellor faced intense criticism for denting business and consumer confidence with her £40bn tax-raising budget in October.
The figures mean the UK has avoided taking the first step towards a possible technical recession, which economists regard as two consecutive quarters of falling national output.
Analysts said the data could help the chancellor before the spring statement on 26 March, amid fears that a sharp growth downgrade from the Office for Budget Responsibility (OBR) could force her to break her fiscal rules.
“It reduces risks of a significant growth downgrade by the OBR. Having said that, the move in yields and potential growth downgrade increases risks of the headroom being wiped out and potential fiscal consolidation in spring,” analysts at Bank of America wrote in a note to clients.
The snapshot follows months of pressure on the government since the budget, after business surveys had indicated a fall in hiring and weakness in private sector activity. Retailers also warned of a disappointing Christmas on the high street.
However, monthly figures show the economy grew by a better-than-expected 0.4% in December, fuelled by growth in the UK’s dominant services sector after a strong month for business-facing services. Economists had expected growth of 0.1% in December.
Liz McKeown, the ONS director of economic statistics, said: “The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year.”
Across the quarter, the production sector – which includes manufacturing and energy – was estimated to have declined for a fifth consecutive quarter, shrinking by 0.8%. Construction output was estimated to have grown by 0.5%.
Responding to the GDP figures, Reeves said: “The growth numbers have come in higher than many expected, but I’m still not satisfied with the level of growth that our economy is achieving.
“And that’s why I am determined to go further and faster in delivering the economic growth and the improvements in living standards that our country deserves.”
It comes after the chancellor used a major speech earlier this month to restate Labour’s commitment to growing the economy, after a flatlining performance since last year’s general election.
The latest figures show the UK economy expanded by 0.9% in 2024, a slight improvement on growth of 0.4% in 2023. Real GDP per head – based on population projects estimated by the ONS – was estimated to have fallen by 0.1% in the final three months of 2024, and was down by 0.1% for 2024 as a whole.
Economists said the outlook remained challenging as the government’s tax changes and fears over Donald Trump launching a global trade war weighs on business and consumer confidence.
The shadow chancellor, Mel Stride, said: “The chancellor promised the fastest growing economy in the G7, but her budget is killing growth.
“Working people and businesses are already paying for her choices with ever rocketing taxes, hundreds of thousands of job cuts and business confidence plummeting. It does not need to be this way.”
Ben Jones, the lead economist at the Confederation of British Industry, said the rebound in activity in December was encouraging, although growth remained lacklustre. “The data supports our view that the loss of momentum in the second half of last year will prove to be a soft patch for the economy rather than a slide back into stagnation,” he said.
Last week, the Bank of England halved its growth forecasts for the UK economy and warned households would come under renewed pressure from rising inflation. It cut interest rates from 4.75% to 4.5%.
Expectations for further cuts were unchanged in financial markets after the GDP data was released on Thursday, with two more reductions expected before the end of the year.
The pound hit a one-week high after the data beat expectations, rising more than half a cent against the dollar at just over $1.25. The UK currency had already been strengthening on Thursday morning, as the markets welcomed the prospect of a peace deal between Ukraine and Russia.
