UK economy forecast to have returned to growth in November – business live | Business

An unexpected drop in December inflation, announced yesterday, has taken some of the pressure off Rachel Reeves, the chancellor, raising expectations for a Bank of England rate cut next month, and reducing UK borrowing costs.

After a tough week for the government on the economy, official figures showed inflation unexpectedly cooled in December to 2.5%, down from 2.6% in the previous month, meaning prices rose at a slower rate.

Lifting some of the pressure on the chancellor as she sought to talk up Labour’s growth agenda, the latest snapshot sent the yield – in effect the interest rate – on UK government bonds tumbling at the fastest rate since 2023.

With 10-year gilt yields falling by almost 0.2 percentage points to about 4.7%, the sharp decline erased nearly all of the increase of the past seven days, when turmoil in the bond market had forced Reeves to contemplate spending cuts to meet her fiscal rules.

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The UK economy is expected to have returned to growth in November, following two consecutive months of contraction.

Economists are forecasting a 0.2% rise in GDP, when the Office for National Statistics releases its latest economic snapshot at 7am GMT. In each of October and September, the economy shrank by 0.1%. November’s annual growth rate is expected to remain steady at 1.3%.

Michael Field, European equity strategist at Morningstar, said:

With growth expected to improve further in 2025, this lays a positive backdrop for UK equities.

Some sectors of the UK economy are clearly struggling, such as manufacturing and particularly areas like chemicals, as they are grappling with high energy prices relative to the US, making them less competitive. The danger is that US tariffs could also worsen the situation for exporters.

Interest rate cuts are the carrot for UK businesses, with insolvencies at 30-year highs as the effect of elevated debt service costs bite.

We’ll also be getting data for trade, manufacturing and industrial production in Britain.

The Agenda

• 9am GMT: Italy trade for November and final inflation for December

• 9.30am GMT: Bank of England credit conditions survey

• 10am GMT: Eurozone trade for November

• 1.30pm GMT: US retail sales for December and initial jobless claims for latest week