UK Economy Sees Very Slight Return To Growth

After three months of stagnation, the UK economy saw a modest growth, largely thanks to increased activity in pubs, restaurants, and the construction sector. According to official data, the economy expanded by 0.1%, following contractions in the previous two months.

This return to growth will be a positive indicator for the government, especially after recent financial market turbulence led to soaring borrowing costs and a drop in the pound's value. However, the growth was less than economists had anticipated, with declines noted in manufacturing, business rentals, and leasing.

Chris Sims, Chief Commercial Officer, UK Business, BT, comments: "Today's figures are a welcome sign of resilience for the UK economy. And this week’s AI announcement by the Government is a clear example that technology is a lever to help turn this resilience into recovery. Small businesses, the engine room of the UK economy, will be at the heart of this – and supporting their tech-enabled growth will also boost our international competitiveness."

"Sustained growth, however, will require more than just policy changes. Large businesses have a vital role to play by sharing expertise and resources with small firms, especially to bridge the digital skills gap. Only through collaboration can we underpin long-term productivity improvements across the economy." 

"We must also make the case for tech modernisation clear to all businesses. A fifth of UK SMEs still rely on outdated technologies, showing there’s significant untapped growth potential. By embracing innovation, these businesses can unlock the full power of our digital economy," concludes Chris.

Michael Brown Senior Research Strategist at Pepperstone, adds: This morning's UK GDP figures pointed to the economy having returned to growth in November, expanding by 0.1% MoM, snapping a run of back-to-back monthly contractions which had begun at the end of the third quarter. Clearly, though, such an anaemic pace of growth is hardly worth celebrating."

"Furthermore, it remains important not to over-extrapolate from a single month's worth of data, particularly with recent sentiment surveys continuing to point to a huge degree of pessimism, and caution, from businesses and consumers alike. This, though, is unlikely to show up in 'hard' data until figures for the early months of 2025 are released. Overall, risks to the UK outlook continue to tilt to the downside."

"Furthermore, the figures do nothing to change the narrative in the grand scheme of things, in that the UK continues to grapple with a grim macroeconomic backdrop, of largely stagnant economic growth, combined with stubborn price pressures. On top of this, after the recent sell-off across the Gilt curve, Chancellor Reeves's fiscal headroom has been all-but-eroded, likely leading to further tax hikes and/or spending cuts as 2025 progresses, thus posing a further stiff growth headwind," concludes Michael.

Martin McTague, National Chair of the Federation of Small Businesses (FSB), said: “November’s nearly-flat growth in GDP offers little comfort to small firms, and it reflects the difficult trading conditions they have been consistently reporting."

“However, yesterday’s news that inflation rose by less than expected will give small firms a measure of hope that interest rates could fall in the near future, something that is badly needed."

“The Government must now make good on its statements that growth is its number one priority. Its recent call for regulators to put forward suggestions for growth-friendly changes they could make is one small businesses will welcome. Support for small firms must also be at the core of the three strategies which will be unveiled this spring: the Industrial Strategy, the Small Business Strategy and the Trade Strategy."

“Looking ahead, the proposed changes in the Employment Rights Bill are much less promising. With nine in ten small firms expressing concern about the Bill, and with two-thirds saying they are preparing to hire fewer staff, the Bill risks dampening growth, and harming the economy by reducing employment levels and deterring expansion."

“The forthcoming Spending Review must be used by the Government as an opportunity to look at how to support small businesses. Small business owners, limited company directors, and the self-employed should be shielded from future tax rises, as it is small and medium-sized businesses who are the ones with the greatest potential to grow, if given the right conditions," concludes Martin.

Isaac Stell, Investment Manager at Wealth Club said: "The UK economy spluttered back to life in November with growth of 0.1%, following two months of negative growth in September and October. The small amount of growth achieved in November will likely take further heat off a chancellor that has been under significant amounts of pressure over the last few weeks."

"Services output, the engine room of UK economic growth grew by 0.1%, Construction output grew by 0.4% and Production output declined by 0.4%."

"The latest figures will be welcomed by the Government, however small they are, and when coupled with yesterday’s inflation undershoot provide a small glimmer of hope. However, Reeves and co will not want to hang out the bunting just yet as challenges certainly remain in the form of upside surprises to inflation and businesses having to shoulder significant rises in national insurance contributions come April."

"However, with an economy that is far from firing on all cylinders, and inflation, for the moment moderating, much needed rate cuts from the Bank of England look like a real possibility.”

Commenting on the modest rise in UK GDP offering a glimmer of encouragement, Douglas Grant, Group CEO of Manx Financial Group, said: “A modest rise in UK GDP offers a glimmer of encouragement, but challenges remain, particularly for SMEs. High inflation continues to squeeze costs and consumer spending, while geopolitical instability and fragile supply chains demand diversification and sustainable practices."

"SMEs must prioritise agility in adapting to potential fiscal and regulatory changes, managing cash flow, and leveraging cost-effective AI and digital tools to boost efficiency."

"Upskilling workforces and embracing flexible labour models will also be crucial in attracting and retaining talent. With investment hesitancy rising, adaptable lending strategies and a focus on resilience are vital to navigating this uncertain economic landscape."

“The current challenges facing SMEs is reflected by research from Manx Financial Group which reveals that nearly a third of UK SMEs have paused or scaled back operations due to financial constraints. Although this marks an improvement from 40% in 2023, significant hurdles persist. Access to external financing remains a challenge for around 10% of SMEs, highlighting the need for a more stable and inclusive lending environment. With the SME lending landscape rapidly evolving, Labour must urgently recalibrate its policies to better support these essential businesses."

As Douglas concludes:

“Given SMEs’ role in driving growth, employment, and innovation, the Labour Government must foster a supportive lending environment for their resilience and expansion. Both traditional and alternative lenders are key to this, as inadequate financing could hinder recovery amid rising taxes, geopolitical tensions, and cost-of-living pressures."