UK Economy Surprised by Growth Amid Ongoing Challenges and Tax Hikes

The UK economy exhibited unexpected growth of 0.1% in the last quarter of 2024, despite forecasts of contraction. The positive momentum was fueled primarily by strong performances in construction, pubs, bars, and machinery manufacturing during December. However, while growth is welcomed, it comes against a backdrop of declining living standards, with the real GDP per head dropping by 0.1% compared to the previous year.

Analysts express concern about future growth prospects, citing tax increases effective in April, such as raised National Insurance and decreased business rates relief, which could limit the capacity for pay rises and new hiring. The Bank of England has revised its 2024 growth forecast significantly lower due to anticipated higher employer costs affecting hiring and investment.

Experts predict stagnant growth moving forward, with the Chancellor acknowledging that reversing over a decade of economic difficulties would take time. Small business owners share concerns over cash flow as costs rise, with some having to reduce their workforce. Economic sentiments are further compounded by rising prices impacting consumer spending.

The construction sector did see an increase in new private housing projects, although overall spending was impacted as homeowners diminished spending on repairs and maintenance. The Chancellor insists on ongoing measures to stabilize the economy, while opposition voices criticize recent budget policies as detrimental to growth. Overall, while the end-of-year growth is promising, it highlights underlying vulnerabilities in the economic landscape.