UK economy unexpectedly grew at end of last year as GDP rose 0.1% – what it means for your money

BRITAIN'S economy showed unexpected growth in the final three months of last year.

The Office for National Statistics (ONS) said gross domestic product (GDP) edged 0.1% higher between October and December, following no growth in the previous three months.

The ONS estimated that the economy expanded by 0.4% in December, which is better than most analysts expected, and marked a pick up following a 0.1% rise in November and a 0.1% fall in October.

The fourth quarter figures means the economy grew by 0.9% overall in 2024.

GDP is one of the main indicators used to measure the performance of a country's economy.

When it goes up, it means the economy is doing well, when it falls it means the economy has shrunk.

GDP increased largely due to the services sector, which rose by 0.2% in the final quarter.

Meanwhile the production sector shrank by 0.2%, offset by construction, which grew by 0.5%.

It comes after the Bank of England said it expects the UK economy to grow by 0.75% in 2025, down from a previous forecast of 1.5%, before accelerating in 2026 after cutting interest rates by 0.25% last week.

ONS director of economic statistics Liz McKeown said: "The economy picked up in December after several weak months, meaning, overall, the economy grew a little in the fourth quarter of last year.

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

She added: "In December wholesale, film distribution and pubs and bars all had a strong month, as did manufacturing of machinery and the often-erratic pharmaceutical industry.

"However, these were partially offset by weak months for computer programming, publishing and car sales."

It's worth bearing in mind, that the quarterly GDP figures published by the ONS today are estimates and may be revised in the future.

Luke Bartholomew, deputy chief economist at abrdn, said: "While still very weak in absolute terms, today's GDP numbers were much better than expected and may act as something of a narrative break."

"Certainly it is difficult to see the economy slipping into a technical recession in the near term now.

"Nonetheless, it is still very likely that the OBR will need to sharply downgrade its growth forecasts, putting more pressure on the Chancellor to meet her fiscal rules."; 

Chancellor Rachel Reeves vowed not to accept an "economy that has failed working people".

She said: "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.

"That is why we are taking on the blockers to get Britain building again, investing in our roads, rail and energy infrastructure, and removing the barriers that get in the way of businesses who want to expand."

What it means for your money

GDP measures the economic output of companies, individuals and Governments.

If it is rising steadily, but not too much, it's a sign of a healthy and prosperous economy.

This is because it usually means people are spending more, the Government gets more tax and workers get better pay rises.

It also generally means lower inflation as companies don't have to hike their prices to cover shortfalls in their coffers.

The Bank of England (BoE) also uses GDP and inflation as key indicators when determining the base rate.

This decides how much it will charge banks to lend them money and is a way to try to control inflation and the economy.

Usually, when inflation is low, the BoE cuts interest rates to try to speed the economy up.

However, the Government's decision to increase employer National Insurance contributions (NICs) from 13.8% to 15% in April has raised fears inflation could rise and dampen GDP.

This is because there are expectations businesses won't be able to absorb the costs and will pass this on to consumers which will see prices rise.

The upcoming hike to employer NICs could also lead to businesses freezing recruitment or letting staff go.

Inflation, which tracks the rate at which prices rise across the economy, has significantly declined to 2.5% per year compared to the highs of recent years.

However, concerns are emerging that it may be starting to rise once again.

At the same time, economic growth in the UK remains sluggish.

Lowering the base rate is intended to encourage greater spending and investment, providing a much-needed boost to the economy.

However, the Bank's forecasts now suggest inflation is rising again, to a higher-than-expected peak of 3.7% later in the summer.

This could lead to the BoE not cutting interest rates as much as previously thought and could mean households' money not going as far as before.

Money markets now anticipate that interest rate cuts will proceed more cautiously than previously expected.

By the end of 2025, markets predict the BoE will reduce rates three times (including today) in total, bringing them down to 4%.

The BoE will be watching the latest GDP figures closely as it decides whether to lower its base rate further in March.

Earlier this month the Monetary Policy Committee (MPC), the BoE's rate-setters reduced the base rate from 4.75% to 4.5% - the third interest rates cut since 2020.

High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.

If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.

Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.