The UK economy saw unexpected growth in the final quarter of 2024, according to the Office for National Statistics (ONS), easing immediate fears of a technical recession. A modest 0.1% increase in GDP helped prevent two consecutive quarters of economic contraction, the standard definition of a recession. This slight expansion was largely driven by a late surge in Christmas spending and a recovery in manufacturing activity in December.
However, while this headline figure may offer some short-term relief, the underlying economic picture remains far from reassuring. Growth for the whole of 2024 stood at just 0.9%, highlighting the sluggish performance of the UK economy over the past year. More concerningly, a key measure of living standards—GDP per capita—has contracted for two consecutive quarters, indicating that economic output has failed to keep pace with population growth.
This stagnation continues to place significant pressure on the government, which has prioritised economic recovery as a central goal of its legislative agenda. The latest figures show that while the UK has narrowly avoided a downturn, it remains in a fragile economic state, with low growth, rising costs, and ongoing uncertainty affecting businesses and households alike.
A Narrow Escape from Recession, but No Real Progress
Economists had widely anticipated a 0.1% contraction for the final three months of 2024, following a flat GDP reading in the third quarter. The unexpected 0.1% expansion, driven by stronger-than-expected retail activity in December, prevented an official recession. However, many analysts warn that this does not signal a meaningful recovery, as the economy remains effectively stagnant.
The ONS report emphasised that the margins between growth and contraction remain razor-thin, meaning that future data revisions could easily tip the balance the other way. This suggests that, while a technical recession has been averted for now, the underlying economic conditions remain fragile.
Adding to the concerns, the GDP per capita decline over two quarters highlights a deeper issue: economic growth is failing to translate into improved living standards. When adjusted for population size, economic output has actually been shrinking, reinforcing the wider economic malaise that many households continue to feel.
Government Faces Mounting Pressure as Economic Challenges Persist
Prime Minister Keir Starmer and Chancellor Rachel Reeves have made economic growth a key priority of their administration. However, the latest figures suggest that their task remains formidable. While a technical recession has been avoided, the broader economic challenges remain unchanged.
The government’s fiscal policies have faced significant scrutiny, particularly from businesses concerned about upcoming tax increases. In particular, employer National Insurance contributions are set to rise in April, a move that companies warn could dampen investment, lead to job cuts, and suppress wage growth.
The bigger concern for the government is that the cost of living remains high. Inflation, which had been easing in late 2024, is now showing signs of rising again, with further increases expected in water bills, energy prices, and council tax from spring 2025. This will place additional financial strain on households, further limiting consumer spending and economic growth.
Bank of England Forecasts Lower Growth for 2025
The Bank of England’s latest economic projections provide further reason for caution. In its most recent forecast, the central bank revised its 2025 growth expectation down to 0.75%, a significant downgrade from the 1.5% estimate published just a few months earlier in November.
This lack of growth poses a major fiscal challenge for the Chancellor, as lower economic activity means weaker tax receipts, at a time when public finances are already under strain.
In response to the ONS data, Rachel Reeves reiterated her commitment to economic reform and investment, stating:
“For too long, politicians have accepted an economy that has failed working people. I won’t.
“After 14 years of stagnating living standards, we are going further and faster through our Plan for Change to put more money in people’s pockets.
“That is why we are taking on the blockers to get Britain building again, investing in roads, rail, and energy infrastructure, and removing the barriers that get in the way of businesses wanting to expand.”
However, opposition figures have challenged the government’s strategy. Shadow Chancellor Mel Stride criticised the government’s economic record, arguing that its policies are stifling growth rather than promoting it:
“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 higher taxes, declining job opportunities, and falling business confidence.
“It does not need to be this way.”
Global and Domestic Uncertainties Add to the Economic Risk
Beyond domestic policy concerns, international factors could further strain the UK economy in the months ahead. One key risk is the possibility of new trade tariffs from the United States, should Donald Trump return to the White House. His previous administration had signalled a willingness to impose tariffs on UK exports, and if similar policies are reintroduced, they could disrupt UK trade and manufacturing.
Additionally, there is growing pressure from Washington for the UK to increase defence spending, which could require further public borrowing or tax hikes at a time when government finances are already stretched.
At home, the Treasury is currently investigating a leaked report from Bloomberg, which suggests that the Office for Budget Responsibility (OBR) has downgraded its growth outlook for the UK. If confirmed, this could force the government to tighten public spending even further, potentially slowing growth even more.
A Precarious Economic Outlook for 2025
While the latest GDP figures have eased immediate fears of a recession, the broader economic picture remains weak and uncertain. The slight 0.1% growth in the final quarter of 2024 was largely driven by one-off factors, and the underlying issues of stagnation, high inflation, and weak investment remain unresolved.
The government now faces a major test: can it deliver real, sustainable economic growth, or will low productivity, high living costs, and weak business confidence continue to hold the UK back?
The coming months will be critical in determining whether this fragile growth can be sustained or whether the UK economy will slip back into stagnation. With inflation rising, tax burdens increasing, and global uncertainties mounting, the economic outlook remains far from stable.
