The British economy growing at a rate of 0.1% per quarter would not normally be cause for celebration at Number 11. After all, GDP could hardly advance any less rapidly without grinding to a complete halt. But after enduring a series of grim economic headlines, Chancellor Rachel Reeves will surely take this as a much-needed morale booster.
Crucially, today’s marginal yet positive growth number dispels any immediate concerns about a winter recession. There had been a real statistical possibility that the fourth-quarter GDP figure would slip into negative territory, signalling a technical recession. However, with this small but significant uptick, that concern has been laid to rest.
Even more encouragingly, the economy accelerated at a relatively brisk pace of 0.4% in December. According to government statisticians, this growth was driven by a variety of factors, including increased consumer spending in the lead-up to Christmas, a significant boost in film and TV production, and higher government expenditure. The festive season brought an influx of customers to restaurants and pubs, while Britain’s burgeoning creative sector contributed strongly to the positive figures.
Of course, one month of reasonable growth does not signal an economic boom. The broader outlook remains challenging, with sluggish overall growth, substantial fiscal and trade deficits, and persistent issues with productivity and investment. These long-standing concerns continue to cast a shadow over economic prospects, making it premature to declare a full-fledged recovery.
Nevertheless, amid the prolonged period of economic gloom and the wintry chill that has gripped London for weeks, is it too soon to whisper about the first signs of a green shoot?
If the City’s financial markets are any indication, there may be room for cautious optimism. The FTSE 100, London’s premier stock index, has been on an impressive run so far this year, climbing nearly 6% and repeatedly setting new all-time highs. This surge suggests that investors may be regaining confidence in the UK’s economic prospects.
For years, global investors have shunned British equities in favour of more dynamic markets elsewhere. However, the recent performance of the FTSE 100 indicates a shift in sentiment. Finally, it seems that investors are beginning to see value in UK-listed companies, recognising potential opportunities in sectors that have long been overlooked.
Meanwhile, the gilt market—so often a thorn in the side of British chancellors—also appears to be stabilising. Last month saw a bout of turbulence that pushed yields on government bonds sharply higher, surpassing levels witnessed in the aftermath of Liz Truss’s ill-fated mini-budget in 2022. At the height of that instability, borrowing costs surged, raising concerns about the sustainability of government debt.
However, today the yield on the benchmark 10-year gilt has fallen nearly half a percentage point from last month’s peak. It now sits slightly below the equivalent rate on US Treasury bonds, a sign that market jitters may be easing. This relative stability in the bond markets will be a welcome relief for policymakers seeking to manage public finances without triggering fresh investor anxiety.
While these developments provide some grounds for optimism, the road to a sustained economic recovery remains fraught with challenges. Inflationary pressures, global economic uncertainty, and domestic policy constraints all pose significant risks. The Bank of England continues to walk a tightrope, balancing the need to control inflation while supporting growth through monetary policy decisions.
Moreover, household finances remain under strain, with the cost of living crisis still affecting millions across the UK. Wage growth has been outpaced by inflation for much of the past two years, eroding purchasing power and dampening consumer confidence. Although recent figures suggest a slight improvement, many families continue to grapple with high energy bills, mortgage costs, and everyday expenses.
Businesses, too, are feeling the pinch. While some sectors—such as hospitality and entertainment—benefited from the seasonal uptick in December, others continue to struggle with weak demand, labour shortages, and rising costs. Investment levels remain subdued, with many companies reluctant to commit to significant expansion plans in an uncertain economic environment.
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Against this backdrop, policymakers face a delicate balancing act. The government will need to navigate complex economic headwinds while striving to foster growth, enhance productivity, and restore investor confidence. The upcoming Budget will be a crucial moment, as it sets out the fiscal priorities for the coming year and seeks to chart a course towards more sustained recovery.
For now, the British economy remains in a precarious position—neither in freefall nor in full resurgence. But if today’s figures mark the first signs of stabilisation, they could offer a glimmer of hope amid the uncertainty. The challenge will be to build on this fragile momentum and translate it into meaningful and lasting economic progress.
