The United Kingdom (U.K.) economy grew by a modest 0.1% in November, data released by the Office for National Statistics (ONS) on Thursday raised expectations that the Bank of England will cut interest rates next month.
The latest data was lower than the 0.2% monthly growth forecast by economists in a Reuters poll.
Monthly real gross domestic product (GDP) fell 0.1% in October after a similar contraction in September, while August recorded a 0.2% increase.
The ONS said the slight growth in economic output in November was largely driven by the services sector. Although weak, the data was the first sign of a recovery in the U.K. economy after three consecutive months of weakness.
British Chancellor Rachel Reeves, in a statement, expressed her commitment to accelerating economic growth.
However, the ONS reported that real GDP showed no growth in the three months to November, compared with the three months to August.
“The services sector did not grow over the period, while manufacturing fell by 0.7% and construction rose by 0.2%,” the ONS said.
The British pound fell 0.2% against the US dollar to trade at $1.2214 after the GDP data. Attention now turns to the Bank of England’s meeting on February 6 to decide interest rates.
Economists say the latest data supports the case for a rate cut next month, although Bank of England policymakers will also consider inflationary pressures such as resilient wage growth and economic uncertainty.
Pressure on the Labour government eased slightly on Wednesday when the latest inflation data showed consumer price growth fell more than expected to 2.5% in December, with core inflation easing to 3.2%.
The U.K. inflation rate hit a more than three-year low of 1.7% in September, but monthly prices have risen due to higher fuel and service costs. In December, the annual rate of inflation in the services sector was 4.4%, down from 5% in November.
“The slowdown in November GDP has erased the optimism sparked by yesterday’s unexpected drop in inflation. Meanwhile, the widening trade deficit continues to highlight the challenges facing UK businesses,” said Samuel Edwards, Head of Dealing at global financial firm Ebury.
He added that the uncertainty surrounding the new US administration’s policies presents both opportunities and challenges, while the government’s strategy to strengthen trade relations with the EU and China is a step towards improving the long-term resilience of the economy.
