Recession fears are growing as the UK economy remains stagnant, posing a major challenge to Chancellor Rachel Reeves’ economic strategy.
Recent data confirms sluggish growth at the end of 2024, with economists warning that the country may be edging closer to a downturn.
Eight months into Labour’s term, the government is struggling to drive economic growth. With inflation still a concern and limited fiscal options, ministers face tough decisions as businesses grapple with rising costs and regulatory pressures.
The Office for National Statistics (ONS) confirmed that the UK economy grew by just 0.1 per cent in the final quarter of 2024, following zero growth in the previous quarter—highlighting a sluggish performance in the second half of the year.
Adding to concerns, the Office for Budget Responsibility (OBR) has halved its 2025 growth forecast, now expecting just one per cent GDP growth, down from its earlier two per cent projection.
This downward revision further weakens economic confidence and raises fresh concerns about the UK’s recovery.
This downward revision further weakens economic confidence and raises fresh concerns about the UK’s recovery
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The OBR attributed its downgraded growth forecast to a “lack of recent momentum and waning domestic confidence.”
The latest data reveals that the UK economy shrank by 0.1 per cent in January, driven by weak performance in manufacturing and construction. Poor weather conditions also played a role in the decline, further dampening economic activity.
“With the current trajectory, recession risks are rising by the day,” warned Nigel Green, CEO of deVere Group.
Despite these concerns, the ONS reported that real household disposable income per person rose by 1.7 per cent in the fourth quarter of 2024, suggesting consumers had more money to spend at the end of the year.
Headline inflation edged down slightly from three per cent to 2.8 per cent, but economists warn that this offers little relief for broader economic concerns.
The Bank of England expects inflation to rise again through 2025, keeping pressure on households and businesses. At the same time, UK interest rates remain high, making borrowing more expensive and slowing down investment and growth.
This combination of persistent inflation and costly borrowing is making it harder for the economy to recover, increasing fears that the UK could slip into recession.
The Treasury has little room to manoeuvre, as government borrowing is running higher than expected. The £9.9bn fiscal buffer has already been wiped out, forcing ministers to prepare for spending cuts.
Government departments will see limited funding increases of just 1.3 per cent per year, while benefits are expected to be reduced. The Government is also considering cutting 10,000 civil service jobs to reduce costs.
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Green said: “The government talks a good game on growth, but it’s making life harder for the very businesses it needs to deliver it.
“Firms are being asked to shoulder higher taxes and rising wage costs, while contending with fresh employment rules that make operations more complex and costly.”
Green described the government’s approach as “a slow squeeze disguised as prudence” that “walks and talks like austerity-lite.”
“What we need now is a reset – one that backs businesses to invest, hire and expand,” Green added.
He called for “less tax, less drag, and a genuine shift in priorities.”
