By William Schomberg, Suban Abdulla
LONDON (Reuters) -Britain’s economic output returned to growth in November, the first month after finance minister Rachel Reeves announced big tax increases for businesses, but the expansion was smaller than expected.
Gross domestic product rose by 0.1% from October, according to official data, after falls in September and October. However, economists polled by Reuters had mostly forecast a 0.2% rise.
Reeves, whose Oct. 30 budget included big increases in social security contributions paid by employers, said she was “determined to go further and faster to kick-start economic growth.”
She will meet regulators on Thursday to discuss what they can do to help the Labour government meet its promise to speed up the economy.
Ben Jones, lead economist at the Confederation of British Industry, said a mood of caution had settled over UK businesses since the budget.
“Many firms are entering 2025 with a focus on reducing operational expenditure, which is likely to weigh on pay, hiring and investment in the months ahead,” Jones said.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said Thursday’s data showed the gloomy mood continued for the UK economy due to the budget tax hikes and global uncertainty after Donald Trump’s U.S. presidential election victory.
The Bank of England looked certain to cut rates in February, Wood said, “but we think the outlook remains brighter than the late 2024 data suggest, and talk of recessionary risk is wide of the mark.”
Sterling fell, dropping by about a fifth of a cent against the U.S. dollar before recovering some of that loss.
The Office for National Statistics said the services sector grew a little in November with wholesaling, pubs and restaurants and IT companies all doing well but manufacturers and oil and gas firms had a weaker month.
Britain’s economy, which was slow to recover from the COVID-19 pandemic, showed zero growth in the third quarter when uncertainty about the upcoming budget hit businesses. The BoE expects economic growth to have flat-lined in the last three months of 2024.
However, an increase in government spending is expected to give a short-term boost to growth in 2025.
Concerns about Britain’s slow economy contributed to a recent surge in its government borrowing costs. But they dropped sharply on Wednesday after inflation data at home and in the U.S suggested interest rates could be cut more quickly.
Lindsay James, an investment strategist at Quilter Investors, said the full impact of the budget was yet to come, with the social security increases due to start in April.
“In addition, Trump’s inauguration is nearing, and the true effects of his policies will start to be felt later in the year,” James said.
British Prime Minister Keir Starmer says he is targeting the fastest per capita growth in gross domestic product among the Group of Seven advanced economies.
Compared with a year earlier, economic output was 1.0% higher in November, the ONS said, weaker than the 1.3% expansion forecast by economists.
(Reporting by Suban AbdullaEditing by William Schomberg and Hugh Lawson)
