Latest monthly GDP performance
The UK economy shrank by 0.1% in January, posing a challenge for Chancellor Rachel Reeves ahead of her critical Spring Statement. Friday’s GDP data from the Office for National Statistics fell short of the predicted 0.1% growth and Decemberโs 0.4%. The production sector’s weakness was a major contributor. Reeves plans to curb public spending on March 26 following disappointing growth and borrowing figures, raising concerns about fiscal rule breaches. After rebounding from a recession in early 2024, growth has stalled, affecting tax revenues. The Office for Budget Responsibility had forecasted 2025 growth at 2%, twice the 1% predicted by Reuters economists.
According to Fridayโs ONS data, the manufacturing sector contracted 1.1 per cent in January, with a 0.2 per cent decline in construction, while services grew 0.1 per cent.
Whist demand challenges are widespread, some business confidence indicators show improved growth expectations
To get a good idea of where the economy is heading, we use leading indicators. These are measures which are collected, and reported on 1-2 months later.
The latest NatWest Regional PMI (Purchasing Managers Index) results were out yesterday. Worth checking them out for more detail here.
Among the 12 areas studied in the regional PMIs, only the North East and London saw new business growth in February. Elsewhere, rising costs pressured demand. Northern Ireland faced the sharpest decline in new work for the second consecutive month, followed by the North West.
Confidence is rising in most regions. Year-ahead growth expectations improved across many areas in February. The West Midlands showed the most optimism, with the North East seeing the largest confidence boost since January. Conversely, Northern Ireland had the weakest sentiment, despite a slight uptick from early in the year.
The Natwest regional PMI results stand in contrast to the BCC quarterly survey of business conditions, which reported a 5% decrease in sales in Q4 2024 and 6% decrease in invesment; and the CBI Business Optimism Index which sank to -47 in Q1 2025, from -24 in Q4 2024. The GfK Consumer Confidence Index also sank from -17 in December 2024 to -22 in January 2025, slightly recoving to -20 in February.
Outlook for reduced labour demand
Most business confidence indicators, including the PMI, point to reduced labour demand and rates of recruitment in 2025.
The estimated number of vacancies was 819,000 in the UK in November 2024 to January 2025; this is a decrease of 9,000, or 1.1%, from August to October 2024. whether this is definite cooling of labour demand, a reduction in demand after the post-covid-19 boom, or a bit of both, is still unclear from the charts on the ONS site – it could be a return to pre-covid levels of vacancies and labour demand.
