World Stock Watch

UK Economy Sees Sluggish Growth Amid Interest Rate Uncertainty

The UK economy’s growth rate has slowed down, with a mere 0.1% increase in November, according to the Office of National Statistics. This falls short of the 0.2% growth rate expected by economists. The country’s real gross domestic product (GDP) has been on a decline, with a 0.1% drop in October and September, following a 0.2% growth in August.

Interest Rate Cuts on the Horizon?

The Bank of England is considering lowering interest rates at its next meeting on February 6. A recent cooler-than-expected annual inflation print for December has fueled expectations of a 25-basis-point rate cut, which would bring the key interest rate from 4.75% to 4.5%. However, the central bank will need to weigh inflationary pressures, such as resilient wage growth and uncertainty over Britain’s economic outlook, against its 2% inflation target.

Government Borrowing Costs and Fiscal Plans Under Scrutiny

The Labour government and Treasury have been under pressure due to rising government borrowing costs and questions over their fiscal plans and higher tax burden on businesses. However, the latest inflation data has provided some relief, showing consumer price growth has cooled more than expected to 2.5% in December.

Inflation Rate Cools Down

The inflation rate has slowed down, with core price growth slowing further to 3.2% in the twelve months to December. The annual services inflation rate stood at 4.4% in December, down from 5% in November. While the UK’s inflation rate had hit a more than three-year low of 1.7% in September, monthly prices had accelerated since then due to higher fuel costs and service prices.

Economic Challenges Ahead

The UK economy faces significant challenges, including sluggish growth prospects and worries over external factors such as potential trade tariffs and internal fiscal and economic challenges. Economists have voiced concerns over the country’s ability to navigate these headwinds, which have dogged the Labour government and Treasury since the October budget.