Economy grows, but only just a little

Daily Business News

Chancellor Rachel Reeves said she was ‘going for growth’ and finally she has got it, but not a lot of it. The UK economy expanded unexpectedly by 0.1% in the three months to December, according to the Office for National Statistics (ONS). Analysts had expected a 0.1% contraction, given the numerous business surveys expressing diminished confidence and output. ONS Director of Economic Statistics Liz McKeown said the data showed output in the services sector grew 0.2% in the quarter, and construction activity rose 0.5%, offsetting a 0.8% fall in production. December’s figures were also boosted by strong performances from pubs and bars as well as the “often-erratic” pharmaceutical sector,” she noted. However, GDP per head fell 0.1% across the final quarter of 2024, following a 0.3% drop in the third quarter, a fact economist Julian Jessop noted meant “recession” on that benchmark. He added on X this morning: “Looking at the expenditure breakdown, the UK economy only managed to grow even by just 0.1% in Q4 2024 because of higher government spending (consumption and investment) and a boost from stockbuilding. Activity in the private sector shrank, consistent with the business surveys”. “The UK economy did at least manage to grow more quickly than other major (i.e. G7) European economies in Q4 2024, but this is not a high bar,” he added.

A leaked report from the Office for Budget Responsibility (OBR) has revealed the official forecaster has downgraded its UK growth outlook, confirming suggestions made yesterday by the National Institute of Economic and Social Research (Niesr) that Chancellor Rachel Reeves has wiped out the £9.9bn headroom she left herself to borrow and may be forced to raise income tax to cover the cost of Government spending. Reeves has launched an investigation into the source of the leaked OBR forecast, published by Bloomberg. The OBR forecast should not have been published until 26^th March. Having changed the fiscal rules to free up more money for public spending, the fact Reeves is still now likely to face a budget deficit shows “particular ineptitude” according to Shadow Business Secretary Andrew Griffith.

Confidence in the UK economy among high net worth individuals has plummeted since Labour came to power, and one in 10 of them are even considering leaving the UK permanently, according to data from the Saltus Wealth Index. In a survey of 2,000 people with investable assets of £250,000 or more, only 48% had confidence in the economy, a steep decline from the 84% registered at the beginning of Labour’s term. 83% of them think the Chancellor will come back with more tax hikes within the next 12 months, with 38%, 37% and 35% expecting her to increase Capital Gains Tax, Income Tax and Inheritance Tax (IHT) respectively. Of the 36% of respondents who voted Labour, two thirds now regret their decision, with changes to IHT and VAT on private school fees cited as their top reasons, with 16% also citing the impact of the government’s policies on business. Mike Stimpson, a partner at Saltus, said: “The extent to which the confidence of high net worth individuals has collapsed demonstrates a missed opportunity for the new Government, who had high levels of support when they came to power and drove the highest levels of HNWI confidence in the UK economy we have ever recorded. Confidence is a critical component in growth, and the fact that this vitally important group of people – the wealth creators, employers and investors in the businesses of tomorrow – feel that the UK economy is not on the right track is a cause for concern.”

Rupert Soames, chairman of the Confederation of British Industry (CBI), has warned Rachel Reeves not to damage economic confidence further with any more taxes on businesses. In a speech in Birmingham yesterday, he said: “The Budget may have worked to fill a hole in the public finances by significantly increasing taxes on business, but in filling one hole it has created another – in the confidence and trust of business ... this is not conducive for encouraging businesses to invest”. Soames added: “Up and down the country businesses need to increase the rate of investment in growth, and they will only do that if they have confidence government policy will support them.”

Business Secretary Jonathan Reynolds has ordered The Competition and Markets Authority (CMA) to be “less risk-averse,” “more agile,” and focus more on easing burdens on businesses. Reynolds ousted the CMA’s former chairman Marcus Bokkerink recently, just three years into a five-year term, replacing him with the former head of Amazon’s UK operations, Doug Gurrr, who had previously criticised the regulator. In a speech this morning, Reynolds will tell the CMA it should focus on “genuine harms” and speed up investigations to give investors more certainty. “We’ve seen great examples of this work, recently, with the CMA challenging supermarkets to ensure loyalty schemes deliver genuine value for money. We’ve seen the regulator driving greater competition between petrol forecourts so motorists aren’t paying a penny more than they have to at the pump. “I want to see more interventions like these – interventions which make a difference, which put more money into people’s pockets,” he will say.

Close Brothers has revealed it is putting aside £165m aside to cover any costs associated with any finding it has mis-sold motor finance, following last year's Court of Appeal judgment ruling commission payments to brokers were unlawful unless the customer was fully aware of it them. The merchant banking group said the provision includes estimates for operational and legal costs, as well as potential customer compensation, adding that the hit would be recognised in its second-half results.

Ofwat has launched another investigation into Thames Water, this time because the debt-stricken utility has admitted that over 100 of its planned 812 environmental protection schemes would not be completed on time. In a brief statement, Ofwat said: "We will be investigating whether these matters amount to a failure by Thames Water to comply with its statutory obligation, and whether enforcement action is required." Lynn Parker, senior director for enforcement at Ofwat, added: "Customers have paid for Thames Water to carry out these essential environmental schemes. We take any indication that water companies are not meeting their legal obligations very seriously. If we find reason to act, we will use our full range of powers to hold Thames to account for any failures, and will require them to put things right."

Barclays has reported a 24% rise in annual profit, having reaped the rewards of its takeover of Tesco Bank. The FTSE 100 lender reported a pretax profit of £8.1bn for 2024 as a whole, against 46.6bn in 2023. The bank will also hand share awards worth about £500 to 90,000 employees, the bank's CEO CS Venkatakrishnan told them in a memo yesterday, its first such employee equity distribution.

Former City minister and Conservative MP Bim Afolami has joined the board of the Quoted Companies Alliance (QCA), which supports smaller and medium-sized listed companies. Afolami worked as a corporate lawyer at Freshfields, Simpson Thatcher & Bartlet before entering Parliament, and at HSBC, where he also sits on the UK board. QCA said his credentials would be “instrumental” in helping it shape and inform policy, with both regulators and the Government.