2:Alarming Truth: Downing Street’s Supposed Relief Over Economy May Be Short-Lived – Here’s the Devastating Reason!
Sky’s Ed Conway says it’s hard to be confident that growth seen in December will
become locked in given the many potential hurdles facing the economy both at
home and abroad.
Economics and data editor @EdConwaySky [http://twitter.com/@EdConwaySky]
Thursday 13 February 2025 08:16, UK
Yes there are all sorts of provisos.
The UK economy [https://news.sky.com/topic/uk-economy-5794] is still flatlining.
A 0.1% contraction, in one key measure, is about as close as you can get to
zero.
The gross domestic product (GDP) per head—widely considered a more accurate measure of living standards—is shrinking. In fact, it has been declining for the past two quarters. This highlights a concerning economic trend, particularly when comparing the UK’s economic performance to that of the United States, the strongest economy in the G7 group of nations.
Despite this, today’s GDP figures offer a rare moment of relief for the Chancellor of the Exchequer. Economists had predicted a contraction of 0.1%, but instead, the economy showed unexpected growth, thanks to a late surge in December. This last-minute boost changed the narrative and helped avoid a technical recession—a situation that could have been politically damaging.
Before these latest figures, the UK’s economic growth profile was bleak, with zero cumulative growth since the last election. However, the recent GDP uptick has marginally improved the overall picture, pushing cumulative growth to 0.4%. While this may seem like good news, it does not fundamentally alter the larger economic challenges the UK faces.
One of the biggest concerns remains the rapid increase in migration, which has significantly boosted the population. This means that even if the economy grows, the income available per person is declining, impacting households across the country.
Additionally, several key industries are in crisis, particularly manufacturing and industrial sectors—once major drivers of the UK economy. These sectors are shrinking at an alarming rate, not just in the UK but across Europe. In Germany, for example, the economy has contracted for two consecutive years, highlighting a broader pattern of deindustrialization across the continent.
To make matters worse, the effects of the last budget, announced in October, are yet to be fully felt. The Office for Budget Responsibility (OBR) is expected to lower its growth forecasts soon, which could push the government to impose further spending cuts.
While the government may welcome the latest GDP figures, the long-term economic outlook remains highly uncertain.
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And that’s before one considers a few other awkward issues: the real impact of
last October’s budget have yet to be felt in the economy. The Office for Budget
Responsibility is widely expected to slash its growth forecasts next month,
which could prompt the chancellor to further trim spending in the coming years.
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Then there are other, even more profound challenges.
What happens if and when the US imposes far-reaching tariffs on UK imports?
How will the UK afford thedramatic increases in defence spending the White House is demanding?
Now, more than ever before, it’s quite plausible that outside events cause outsize impacts
on the UK economy.
In short, while today’s numbers will be a relief in Downing Street, it’s not
altogether clear how long that sense of relief will last.
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