Hip London: A Shaky Economy
UK's economy is experiencing a contraction
The UK economy took a wobbly stride into the final quarter of 2024, with a 0.1% shrinkage in October according to the Office for National Statistics (ONS). This marks the second straight month of contraction, a phenomenon last seen in the spring of the pandemic year 2020.
In the midst of this economic turmoil, the manufacturing sector is experiencing a sluggish pace, with the PMI consistently falling below the 50-mark—indicating contraction. The PMI dipped from 48.3 in January 2025 to 46.4 in February 2025.
Behind the Scenes
The UK economy is grappling with global trade challenges, as key markets like the EU, China, and the US are reducing their demand. This slowdown in manufacturing activity is further aggravated by an expanding public sector, which is crowding out the private sector and potentially impacting business investment and hiring plans.
Adding fuel to the fire, soaring raw material and energy costs are threatening to sap the profits of businesses. It's no wonder then that the economy is slowing down.
Impact on the Public
The public seems to be responding to the economic uncertainty with caution. Consumer confidence is plummeting, prompting households to tighten their purse strings. Despite this, savings to income ratios are still keeping heads above water.
The mortgage market saw a spike in lending in March, thanks to changes in stamp duty thresholds. However, experts predict a cooling-off period in the near future.
The Government's Tough Choices Ahead
The UK government is facing a fiscal quandary, balancing between maintaining fiscal rules and promoting economic growth. rising borrowing costs are a concern, and striking the right balance will be a challenging task.
Despite the economic slowdown, the exact sequence of contraction in 2024 remains to be seen, as the ONS data reveals a growth of 0.1% in Q4 2024, following no growth (0.0%) in Q3 2024.
In the face of global trade challenges and rising raw material and energy costs, many businesses are finding it difficult to maintain profits, which could potentially impact business investment and hiring plans. The government faces a challenging task of balancing fiscal rules with promoting economic growth amidst rising borrowing costs.
In an effort to stimulate the slowing economy, the government might choose to invest more in key sectors like finance, in hopes of fostering business growth and reviving consumer confidence.
