The UK economy grew by a better-than-expected 0.3% in November, offering a glimmer of hope for Chancellor Rachel Reeves as she grapples with the fallout from pre-budget speculation. While the figures provide a boost, experts warn that challenges remain on the horizon for the British economy.
The unexpected growth, driven in part by a recovery in manufacturing after the Jaguar Land Rover cyber-attack earlier in the autumn, comes as a relief for Reeves, who had faced criticism over the impact of budget uncertainty on household and business spending decisions. However, the data also reveals signs that the budget speculation has taken its toll, with real estate activity slumping and consumer-facing businesses struggling.
Within the Treasury, there is acknowledgment that excessive pre-budget speculation has throttled growth, prompting the Chancellor to promise a “no-frills” spring statement. This move, which includes leaving a larger buffer against fiscal rules and removing the requirement for the Office for Budget Responsibility to check their compliance, is designed to limit the chances of a repeat.
Looking ahead, there are tentative signs of improvement, with a small uptick in business activity recorded in December. Inflation is also expected to fall significantly, aided by Reeves’ budget measures, potentially enabling the Bank of England to hit its 2% target by the spring. Additionally, the job market appears to be stabilising, with workers benefiting from real wage growth and households sitting on elevated savings levels.
However, economists caution against getting carried away. Business leaders warn that cost pressures remain high, with a rising minimum wage, tax increases, and elevated borrowing costs likely to weigh heavily on firms. The Resolution Foundation has warned that this could lead to a sharp uptick in unemployment, as so-called “zombie firms” that have been barely keeping up with their bills are finally pushed over the edge.
Geopolitical concerns have also risen up the agenda, with Donald Trump’s increasingly interventionist approach to world affairs potentially chilling the global economy and business investment. Domestically, the Labour party’s tough round of May elections also raises the spectre of fresh political instability.
While the November growth figures provide a welcome boost, there is still considerable work to be done for the Chancellor to lift the clouds over the UK economy in 2026. Reeves and her team will need to navigate a delicate balance between supporting growth and ensuring fiscal sustainability in the face of these multifaceted challenges.