UK sees slow growth at the end of 2024

The UK economy grew in the final quarter of 2024 according to data published by the Office for National Statistics (ONS) in February 2025. This showed that real GDP is estimated to have grown by 0.1% in Q4 2024, after not growing at all in Q3 2024 (Figure 1).

Figure 1:

The ONS notes that the services and construction sector both grew in the final quarter by 0.2% and 0.5% respectively. However, the production sector saw a fall of 0.8%. Looking at 2024 as a whole real GDP is estimated to have increased by 0.9% across year, however real GDP per head fell by 0.1%

Bank cuts interest rates and its economic forecast

On 6 February the Bank of England (BoE) cut interest rate by 0.25 percentage points to 4.5%. This was the third rate cut by the BoE since August 2024 when they started lowering interest rates from their recent high of 5.25%.

Figure 2:

The BoE noted that although Consumer Price Index (CPI) inflation is expected to pick up to 3.7% in Q3 2025, due to “higher global energy costs and regulated price changes”, it is then “expected to fall back to around the 2% target thereafter”. The BoE also published its latest Monetary Policy Report which sets out its thinking around the economy and the path of inflation. In it they noted that “GDP growth in 2025 is much weaker than in the November Report, reflecting recent data developments. Quarterly growth rates are similar to in November beyond the start of this year, however”. Their forecast thus indicates a growth rate of 0.75% for 2025 as a whole, while growth of 1.5% is indicated for both 2026 and 2027.

Other institutions have also recently published forecasts for the UK economy with the National Institute of Economic and Social Research (NIESR) publishing a new UK economic forecast in February. It expects growth to remain subdued for the first half of 2025 but to pick up in the second half of the year with growth over the year as a whole being 1.5%. Despite this it does caution that “the living standards of the bottom 40 per cent of households will not return to pre-2022 levels before the end of 2027: while real personal disposable income is projected to grow by 1.9 per cent in 2025 and 1 per cent in 2026, this will not compensate for the fall in living standards … between 2022 and 2024”.

UK inflation hits a 10-month high

Looking at the cost of living, data published
by the ONS showed that UK annual CPI inflation stood at 3% in January, up from
2.5% in December (Figure 3) and above the rate surveyed analysts had been
expecting. Commenting on the largest upward contributions to inflation the ONS
noted that they “came from transport, and food and non-alcoholic beverages; the
largest downward contribution … came from housing and household services”.

Figure 3:

Beyond the headline inflation figure other inflation measures also picked up. Core CPI inflation (excluding volatile energy, food, alcohol and tobacco prices) increased to 3.7% over the year to January 2025, up from 3.2% in December. The CPI goods annual rate rose from 0.7% to 1.0%. While the CPI services annual rate increased to 5.0% in January up from 4.4% in December.

Looking forward Ofgem announced this month that the energy price cap will rise by 6.4% in April. This means that a typical household energy bill will increase by £111 a year to £1,849. This increase was the third successive increase in the price cap and was higher than most analysts had expected. The regulator said the increase in the cap was due to increased wholesale energy costs and inflation.

President Trump announces further tariffs

President Trump has continued to outline and rollout tariffs on certain exports to the US. These include 25% tariffs on steel and aluminium imports as well as proposed tariffs on other goods such as cars, semiconductors and pharmaceuticals. Trump has also said that he will impose “reciprocal tariffs” on countries based in part on trading agreements, including imports and exports, with the US but also what the Trump administration has called “unfair or harmful acts, policies or practices”. However, Trump has also called VAT an “unfair, discriminatory or extraterritorial tax”. It has been estimated that if tariffs and VAT are combined UK exports to the US could be hit with a 21% tariff. The imposition of these tariffs under Trump's trade policy has reignited global concerns regarding economic growth, trade stability, and market uncertainty. This is in part because tariff impositions fuel uncertainty in financial markets, disrupting investment decisions worldwide as well as in the long-term fostering economically inefficient business practices. Further, emerging markets face capital outflows and currency volatility, while businesses delay expansion plans amid trade policy instability.

London’s international tourist numbers almost back to pre-pandemic levels

GLA Economics has recently updated its international tourism projections. These find that tourism in London has shown resilience, with activity levels nearing the pre-pandemic benchmark set in 2019 (Figure 4).

According to the latest data from the ONS, international tourism between Q1 2021 and Q4 2023 has displayed a robust recovery trajectory. By the end of 2023, international visitor nights had recovered to 97% of 2019 levels, while international visitor numbers reached 93%. However, expenditure has been slower to recover, standing at 88% of the 2019 benchmark. This lag in spending is reflective of continued inflationary pressures and evolving consumer spending habits.

Figure 4: International tourism history and projections for London

Source: ONS and GLA Economics projections

Even as the sector remains in a recovery period, seasonal historical averages following COVID-19 may have shifted. Early 2023 saw a stronger recovery, but growth appeared to plateau toward the latter half of the year, reflecting a complex interplay of global economic conditions and evolving travel behaviours.

This plateau suggests that the sector has entered a consolidation phase, where the initial recovery has matured but further growth hinges on broader economic conditions. Our projections for 2030 indicate that London’s tourism sector will not only recover but surpass pre-pandemic levels. Compared to 2019, visitor nights are expected to increase by around 17%, while visitor numbers are projected to grow by approximately 16%. In terms of expenditure an 11% increase is anticipated in real terms, underscoring the sector's potential for sustained growth despite the current challenges.

It should however be noted that these projections are based on the assumption that there will be no major disruptive events affecting tourism. The forecast reflects the expectation that global economic conditions will stabilise, and consumer confidence will gradually improve.

Cost of living remains Londoners key concern

London Councils have published its annual survey of Londoners this month. The survey which was conducted by Ipsos found that the most important issue for those surveyed continues to be the cost of living “followed by housing affordability, and crime and policing”. While, of those surveyed, “four in five say there are not enough affordable homes in London”. Beyond this, “nearly half support more devolution, but majorities support more devolution of housing and transport”. While, “support for increased taxation and spending powers is contingent on local communities having more of a say on how revenues are spent and revenues being directed to services in London”.

Thames Water secures rescue loan

Elsewhere, Thames Water won a High Court judgment this month to secure a £3 billion loan. The company claims the loan will give it the space to restructure its debts, which stand at £19 billion, and attract further funding from potential new investors. However, the loan had to be approved by the High Court after some Thames Water creditors objected to the 9.75% interest rate on the loan.

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.

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