Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone
16th January 2025
This morning’s UK GDP figures pointed to the economy having returned to growth in November, expanding by 0.1% MoM, snapping a run of back-to-back monthly contractions which had begun at the end of the third quarter. Clearly, though, such an anaemic pace of growth is hardly worth celebrating.
Furthermore, it remains important not to over-extrapolate from a single month’s worth of data, particularly with recent sentiment surveys continuing to point to a huge degree of pessimism, and caution, from businesses and consumers alike. This, though, is unlikely to show up in ‘hard’ data until figures for the early months of 2025 are released. Overall, risks to the UK outlook continue to tilt to the downside.
Furthermore, the figures do nothing to change the narrative in the grand scheme of things, in that the UK continues to grapple with a grim macroeconomic backdrop, of largely stagnant economic growth, combined with stubborn price pressures. On top of this, after the recent sell-off across the Gilt curve, Chancellor Reeves’s fiscal headroom has been all-but-eroded, likely leading to further tax hikes and/or spending cuts as 2025 progresses, thus posing a further stiff growth headwind.
Consequently, 2025 is likely to remain a year of stagflation for the UK economy, permitting the Bank of England to ease policy only gradually, likely continuing with the present quarterly pace of 25bp cuts with another such move at the February meeting, though being unable to lower rates to support growth as much as policymakers may desire, owing to the sticky nature of underlying inflation within the UK economy.