Volkswacht Bodensee - UK economy picks up ahead of US tariff risks

Gross domestic product expanded 0.1 percent in the October-December period after zero growth in the third quarter of 2024, the Office for National Statistics (ONS) said in a statement.

Analysts' consensus forecast was for the UK economy to have contracted slightly in the fourth quarter.

The data hands a reprieve to the government of Prime Minister Keir Starmer which has put growing the UK economy at the top of its mission since Labour won a general election in July after 14 years in opposition to the Conservatives.

- 'Not satisfied' -

The economy had struggled to grow during Labour's first few months in office as inflation remained elevated.

Blame has also been heaped on finance minister Rachel Reeves after she hiked a tax on businesses in her inaugural budget.

"The growth numbers have come in higher than many expected, but I'm still not satisfied with the level of growth that our economy is achieving," Chancellor of the Exchequer Reeves told broadcasters following Thursday's data.

In an official Treasury statement, Reeves said she was determined to help grow the UK economy, in large part by easing regulation on building new infrastructure.

"For too long, politicians have accepted an economy that has failed working people. I won't.

"After 14 years of flatlining living standards, we are going further and faster through our plan for change to put more money in people's pockets," Reeves added.

The Bank of England last week halved its forecast for British growth this year, saying GDP would now expand only 0.75 percent in 2025, blaming global risks amid tariffs on imports into the United States unleashed by President Donald Trump.

That would mark a slowdown on growth of 0.9 percent last year, according to ONS data Thursday, which added that the economy expanded 0.4 percent in December.

"The economy picked up in December after several weak months, meaning overall the economy grew a little in the fourth quarter," noted Liz McKeown, director of economics at the ONS.

"Across the quarter, growth in services and construction were partially offset by a fall in production," she added.

- Tariffs threat -

The pound, which had come under pressure from Trump's announcements on tariffs, grew solidly against the dollar following the GDP data, which analysts said eases pressure on the Bank of England to cut interest rates more than anticipated.

"The market is expecting a further two rate cuts from the BoE this year," noted Kathleen Brooks, research director at XTB, after the central bank last week trimmed borrowing costs by a quarter-point to 4.5 percent as weak growth offsets above-target inflation.

"Whether or not the market starts to price in a faster pace of rate cuts will depend on the upcoming labour market and inflation data in the UK," Brooks added.

The BoE also expects British inflation this year to come in higher than it thought, owing to persistently-elevated energy bills.

The ONS on Thursday added that UK exports of goods to the United States rose by £500 million ($614 million), or nearly 11 percent, in December, the first full month of trade data following Trump's election win.

"This could potentially be an indicator of traders adapting their behaviour ahead of any tariffs being implemented," the statistics office added.

Britain on Tuesday said it was "engaging" with the United States on the detail of the president's steel tariffs, in contrast to firm responses by Canada and the European Union.

Seeking to keep Britain's closest ally onside, Starmer told parliament Wednesday:

"The US and the UK share a strong and balanced trading relationship, we invest hugely in each other's economies and we will continue to work closely with President Trump to boost growth and to create jobs."

M.Vogt--VB