UK economy grows for first time in three months

The UK economy grew for the first time in three months, partly due to increased trade in pubs, restaurants and construction.

Official data showed the economy grew 0.1% after shrinking in the previous two months.

A return to growth would be a welcome sign for the government after recent turmoil in financial markets has seen its borrowing costs reach their highest levels in years and the pound has weakened.

But the figure was lower than economists expected, with both manufacturing and corporate rents and leasing volumes falling.

Chancellor Rachel Reeves reiterated her commitment to improving economic growth “further and faster” to lift living standards, declaring it a “top priority” for the government.

“This means creating investment, driving reform and working tirelessly to eliminate waste from public spending,” she said.

However, with tax rises due to come into effect in April, businesses have repeatedly warned that the additional costs faced by national insurance and minimum wage increases could impact the economy's ability to grow, with employers expecting less cash to be available for payments. Raise wages and create new jobs.

The Office for National Statistics (ONS) said the economy was not expected to grow in the three months to November.

HSBC senior economist Liz Martins said the economy was stalling and business confidence had “really deteriorated in recent months”.

“We’re off to a pretty bleak start to the year,” she said. “We're not in a recession, but we're not growing much either.”

In a bid to turn the tide, Reeves will later meet with representatives from some of the country's biggest regulators, including energy regulator Ofgem and the Competition and Markets Authority, to get ideas for growing the economy.

It is understood Reeves decided to meet them in person rather than wait to read submissions, with one Treasury source describing the meeting as “an exciting affair”.

The Office for National Statistics said construction and services drove marginal growth in November.

The construction industry was led by new business developments, but Liz McKeown, director of economic statistics at the ONS, said output continued to fall in November, with “further declines across a number of manufacturing and oil and gas extraction companies”.

She added: “There was slight growth in services, with wholesale, pubs, restaurants and IT companies all performing well, but this was partly offset by declines in accounting and commercial leasing.”

Adrian Haller, who runs the UK branch of Swiss high-speed press manufacturer Bruderer, is preparing to open a new factory in Telford, Shropshire.

But Mr Haller has no doubt the Budget has “put a damper” on business, with some of his biggest clients becoming more cautious after the announcement of an increase in employer national insurance contributions.

“As a result, they have less interest in placing orders with companies like us.”

Mr Haller said “manufacturing was strong” at the start of last year, but economic activity failed to pick up after an expected pause around the election.

“Everyone seemed to have the handbrake on,” he said. “All I ask is that the government listens to what we have to say, and the fact that they've made too many changes too quickly – it's making it very difficult for us to survive.”

Economic growth usually means people spend more, more jobs are created, more taxes are paid, and workers get better raises.

When the economy shrinks, it can cause businesses to cut investment and employment.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the tax rises announced in the chancellor's October budget and concerns surrounding Donald Trump's potential trade tariffs on the US “Global uncertainty” has “brought the economy to a standstill”.

The weaker-than-expected growth data further fueled expectations that the Bank of England will cut interest rates at its next meeting in February, from 4.75% to 4.5%.

But Mr Wood said the outlook for 2025 was brighter than the 2024 figures, with consumer demand appearing “solid”.

He said that despite a corporate tax increase in April, Reeves' “converting the increased tax revenue into more spending” should boost the economy by 2025.