The UK economy has recently shown signs of stagnation, with no growth recorded between October and December. In light of these developments, the Bank of England opted to maintain interest rates during its latest meeting on Thursday. This decision comes as the latest economic figures reveal a slight decline in retail sales for November, raising concerns about overall sales performance for the year.
In a report released by the Office for National Statistics, retail sales in November dipped by 0.2%, following a 0.7% decline in October. Despite this minor setback, sales at supermarkets experienced a boost, which helped mitigate the overall downturn. However, the broader economic landscape remains worrisome, as growth projections have been downgraded to zero for the final quarter of 2024, down from an earlier forecast of 0.3%.
Inflation continues to be a pressing issue, hitting 2.6% in the year leading up to November, surpassing the Bank of England's target of 2%. The rising costs have prompted concern among economists and policymakers alike. Alison Ring, director of public sector and taxation at the ICAEW trade body for accountants, stated that “the bigger picture remains deeply troubling.” She added that recent economic indicators such as weak growth and rising inflation are "flashing amber," indicating potential risks ahead.
In contrast to the economic challenges, government borrowing saw a decline in November. The figure stood at £11.2 billion, marking the lowest borrowing amount for the month since 2021. This figure represents a decrease of £3.4 billion from the same month last year and fell below expectations of around £13 billion. Contributing to this drop was an increase in tax revenue and a reduction in debt interest payments, which were down by £4.7 billion compared to last year.
Darren Jones, Chief Secretary to the Treasury, expressed optimism about the government’s fiscal strategy: "Now we have wiped the slate clean, we are focused on investment and reform to deliver growth." His remarks underscore a commitment to revitalizing the economy despite the ongoing challenges.
The total amount borrowed by the government since the beginning of the current financial year has reached £113.2 billion. This shift in borrowing dynamics coincides with a tightening of finances across various sectors. Alison Ring emphasized that “money remains extremely tight and that is unlikely to change any time soon,” highlighting the persistent pressures faced by both consumers and businesses.
Chancellor Rachel Reeves found a silver lining in the recent borrowing figures, with Ruth Gregory, deputy chief UK economist at Capital Economics, referring to it as “Christmas has come early.” This sentiment reflects a cautious optimism amid otherwise bleak economic forecasts.