UK GDP falls unexpectedly in October

The Office for National Statistics (ONS) published data for UK GDP growth in October. This data showed that UK output unexpectedly shrank in October with GDP dropping by 0.1% compared to a month earlier (Figure 1).

Figure 1: Contributions to monthly UK GD) growth, October 2023 to October 2024

Source: GDP monthly estimate from the ONS

This follows on from a decline in output in September and came as a surprise, as most surveyed economists had expected the UK to have grown marginally in October. The ONS observed that this drop was “largely because of a decline in production output”. Output in the production sector fell by 0.6% in October due to falls in manufacturing, and mining and quarrying output. This follows a fall of 0.5% in September. Output in the services sector was flat in October following 0.1% growth in September. Construction output fell by 0.4% following growth of 0.1% the previous month. Looking at a longer period, real GDP is estimated to have grown by 0.1% in the three months to October 2024, compared with the three months to July 2024. Growth was seen in both the service and construction sectors over that period.

Looking forward, the OECD published their latest Economic Outlook forecast this month. This forecasts that the UK will grow by 0.9% this year, 1.7% in 2025 and 1.3% in 2026. This compares to forecasted growth for all the OECD countries of 1.7% this year, 1.9% in 2025 and 1.9% in 2026. Commenting on the forecast for the UK the OECD observed that growth next year will be boosted by the large increase in public expenditure “set out in the autumn budget”. However, they also noted that “wage-driven pressures on the price of services and the fiscal stimulus will keep underlying price pressures elevated, leaving headline inflation above target over 2025-26. Large government deficits, expected at 4.5% of GDP in 2025 and 3.9% in 2026, will hold public debt above 100% of GDP and rising”.

Inflation picks up further in November

The UK inflation rate rose to 2.6% in the 12 months to November 2024, its highest level since March, and up from 2.3% in October and 1.7% in September (Figure 2). While inflation has fallen significantly from the peak of 11.1% in October 2022, it is above the Bank of England’s (BoE) target of 2%. However, it currently remains within the ±1% range in which it can fluctuate without the Governor of the Bank of England having to write an explanatory letter to the Chancellor of the Exchequer.

Figure 2: CPI, goods, services and core annual inflation rates, UK, November 2019 to November 2024  

Source: ONS, GLA Economics

Beyond the headline inflation figure, other measures also generally picked up. Core CPI (excluding volatile energy, food, alcohol and tobacco prices) inflation increased to 3.5% over the year to November 2024, up from 3.3% in October. The CPI goods annual rate rose from negative 0.3% to positive 0.4%. The CPI services annual rate remained unchanged at 5.0%. Thus, with inflationary pressures picking up a bit the BoE Governor, Andrew Bailey, has indicated that further interest rate cuts are likely to be gradual to ensure that inflation stays under control.

Despite inflation being lower than in recent years financial pressures on households remain high. One such pressure comes from the housing market, with mortgage holders facing potential cost increases, with around 4.4 million households likely to experience higher payments by 2027, including roughly 420,000 households facing monthly hikes of more than £500, according to the BoE in its latest Financial Stability Report published at the end of November. However, the BoE noted that households are better prepared for these increases due to mortgage rates beginning to lower and longer borrowing terms.

Still, in more positive news the BoE in the same report also highlighted improvements in the mortgage market, with net mortgage approvals for house purchases rising to 68,300 in October 2024, the highest since August 2022. Refinancing approvals also increased, as the burden of higher interest rates eased with recent rate cuts. Further, around 2.4 million households on variable rates are expected to benefit from falling mortgage costs.

Bank of England finds global financial risks remain high

The BoE’s Financial Stability Report also looks beyond just mortgages to the stability of the UK’s financial system as a whole. It outlines the key risks and developments affecting the UK financial system. The BoE notes that global risks such as geopolitical tensions and economic fragmentation remain significant, particularly for the UK, given its open economy and large financial sector. While global financial markets have absorbed recent shocks in an orderly manner, vulnerabilities in market-based finance continue to pose a risk, potentially amplifying market disruptions and affecting the availability and cost of credit in the UK. Despite these challenges, UK households and corporate borrowers are expected to remain resilient, supported by a well-capitalized banking system.

Still, domestically, they observe that while UK financial markets have seen a rise in long-term government bond yields, nevertheless risk premia remain close to historical lows. The results of the 2024 stress test show that UK banks would maintain strong capital buffers even in severe economic downturns, demonstrating their ability to continue supporting the economy. While risks to global growth and inflation persist, UK banks are well-positioned to absorb shocks and support credit demand.

The report also highlights the ongoing concerns about high public debt levels and geopolitical tensions, which could lead to higher borrowing costs and increased market volatility. Cyber-attacks, as part of heightened geopolitical risks, also present a potential threat to financial stability. In the corporate sector, small and medium-sized enterprises, particularly those backed by private equity, may face greater challenges as they refinance amid higher interest rates, though the overall outlook for UK borrowers remains stable.

In all the BoE found that the UK banking system remains resilient, with strong capital and liquidity positions. Stress test results confirm that banks would be able to withstand severe global shocks and continue lending to households and businesses. Despite some vulnerabilities in market-based finance, particularly related to hedge funds and the intersection of private equity and life insurance, the banking sector is expected to remain stable and capable of supporting the economy in the face of ongoing risks.

The global economy is facing subdued growth and geopolitical challenges as it heads into the New Year

Recent global economic developments reflect slow growth, although inflation has been moderating across many regions. In Syria, escalating tensions and the collapse of President Assad’s regime have raised concerns about regional stability. Meanwhile, the U.S. presidential election has introduced uncertainty, with potential shifts in trade policies under President Trump, including the risk of new tariffs that could disrupt global supply chains.

In the energy sector, according to the International Energy Agency’s (IEA) Oil Market Report for December 2024, global oil demand growth has slowed, with a forecasted increase of just 840 thousand barrels per day (kb/d) in demand in 2024, down from previous years. This slowdown is due to the end of post-pandemic demand surges and the increasing use of clean energy technologies. Global oil supply, however, continues to grow, with major increases expected from non-OPEC+ countries like the US and Canada. Despite production disruptions in regions like Libya, the oil market is expected to remain well-supplied, though demand remains weaker, particularly in China. The IEA’s latest report forecasts a supply surplus in 2025, even if OPEC+ production cuts continue. The agency stresses the importance of continued investment in renewable energy to support long-term energy resilience.

In the EU, the IMF has raised concerns about the rising state aid provided by member countries, which could undermine overall competitiveness if not coordinated effectively. State aid, primarily for green technologies and energy efficiency, has tripled in the past decade, and while it can stimulate growth, the IMF warns it may have negative effects on other nations. The IMF calls for a more centralised approach to state aid within the EU to prevent competitive imbalances. As the EU faces increasing challenges from industrial policies in the US and China, this shift is seen as essential for bolstering Europe’s economic resilience.

Workforce Jobs Revised Down for London and the UK

The ONS has recently updated the Workforce Jobs (WFJ) by Region and Industry dataset. The major annual revisions that benchmark WFJ to employer surveys over the previous two years show that job creation has been overstated.

These revisions have led to notable downward adjustments in WFJ estimates, particularly from March 2019 onward. Further, the impact of these revisions is significantly greater for London compared to the UK as a whole.

Starting in late 2022, London’s numbers were revised down sharply (Figure 3). For June 2024, London’s workforce job figures have been revised downward from 6,648,000 (published in September 2024) to 6,411,000 in the latest release—a reduction of 237,000 jobs. This represents a 3.6% decrease in job numbers, compared to a more modest 1.0% downward revision at the UK level for the same quarter.

The most recent data for Q3 2024 also indicate a negative quarterly growth rate, with London’s workforce job numbers decreasing by 0.7% compared to Q2 2024. Despite this decline, the annual growth rate for Q3 remains positive at 1.0%. Details of changes across specific industries and sectors will be examined in our future publications.

Figure 3: Comparing London’s WFJ estimates between March 2019 to September 2024 – September 2024 estimate versus December 2024 estimate

Source: ONS

GLA Economics will continue to monitor all these and other aspects of London’s economy over the coming months in our analysis and publications, which can be found on our publications page and on the London Datastore.

Read the full newsletter: