
GDP was flat in the second half of 2024, and business surveys indicate that economic activity has been weak in early 2025. Firms have expressed concerns over upcoming tax rises, with some saying they will reduce employment and raise prices as a result.
The Chancellor announced plans to boost growth, focusing on increasing investment in the economy, including in infrastructure projects.
GDP flat at the end of 2024
Recent economic data shows an economy that is struggling to grow, with GDP increasing by 0.1% in November 2024 compared with the previous month. This followed two successive months where GDP declined by 0.1%.
There was stronger GDP growth in the first half of 2024, but this proved to be short-lived. GDP in November was the same as in July, reflecting no growth over this time (although estimates of past growth can be revised), as the charts below show.

Other indicators have also shown sluggish economic activity at the end of 2024. For example, retail sales volumes were down 0.8% in the fourth quarter of 2024, compared with the previous quarter.
Weak growth likely for early 2025
Surveys of businesses show a combination of weak activity and deteriorating sentiment. For instance, the Lloyds Bank sector tracker reported that economic output contracted in 11 of the 14 sectors it covered in December.
The S&P global purchasing managers’ index showed slowing growth in business activity in the second half of 2024 and in January 2025 (its latest report). While the overall survey still showed expanding output, firms reported total new work falling at its fastest pace since October 2023.
A Confederation of British Industry survey reported more private sector companies expect their output will fall between January and April than increase (net -22%). Expectations for consumer services companies were particularly low.
The lacklustre end to 2024 and relatively downbeat business surveys point to a subdued outlook for GDP growth in early 2025.
Forecasts for 2025 as a whole are for modest growth: the average forecast made in January is for GDP growth of 1.2% for 2025.
Business concern over tax rises
Business groups have voiced concerns over an upcoming increase in the national living wage of 6.7% and a tax rise in the form of higher employers’ National Insurance contributions (NICs) announced at the 2024 Autumn Budget.
These will take effect from April 2025 and many firms are worried about how this will affect their costs. A British Chambers of Commerce survey from the end of last year showed that 63% of businesses cited taxation as a concern, up from 48% in the previous survey conducted before the Budget.
A Bank of England survey asked finance directors in November and December how they would react to the higher NICs, and found that 61% of businesses expect to lower profit margins as a result, with 54% expecting to raise prices and 53% expecting to lower employment.
How businesses actually react remains to be seen, but with economic conditions subdued, many firms report feeling under pressure.
The government introduced these tax increases on businesses in order to fund some of the planned increases in public spending it announced at the Budget in October 2024. In an interview with the Times, the Chancellor said she had to make difficult decisions upon taking office, saying “the public finances were an absolute mess” when Labour came to power.
Government’s plan for growth
The government has repeatedly said that growth is its number one, or defining, mission. In January 2025, the government has been particularly vocal about the need for policy to boost economic growth. For example, the Prime Minister said, “We will kick down the barriers to building, clear out the regulatory weeds and allow a new era of British growth to bloom.”
On 29 January, Chancellor Rachel Reeves gave a speech setting out the government’s plans to boost growth, based on “stability, reform and investment”. Specific plans included:
- Infrastructure, including support for expanding airport capacity such as at Heathrow, and plans to develop “the Oxford to Cambridge growth corridor”. New reservoirs will also be built.
- Deregulation, to remove barriers to growth. The Chancellor announced intentions to deregulate the planning system and simplify environmental protection rules.
- Business investment, plans are intended to boost investment from UK businesses and from abroad.
These plans are likely to be longer term in nature, with the aim to boost the UK’s low growth rate since the financial crisis of 2007 to 2009.
In the short term, consumer and business sentiment (their so-called animal spirits) might improve if people view the government’s more upbeat announcements on growth positively.
Changes in the gilt market
The government has also had to contend with rising government borrowing costs, at least temporarily.
In the first couple of weeks of 2025, interest rates on UK government bonds – usually referred to as gilt yields – rose quickly, attracting media and political attention. These changes are shown in the charts below.

When the UK Government needs to borrow money, which it does most of the time, it issues bonds. This is a request for a loan from investors on financial markets. The government pays interest on these bonds, which are often called ‘gilts’.
These gilts can be traded among investors, with the price and yield – the return investors can expect – of gilts fluctuating.
Gilt yields are roughly the interest rate the government will have to pay when they sell more gilts to the market, so higher yields mean the government has to pay more to borrow. The government’s interest payments on gilts that have previously been sold are not affected.
Why did gilt yields rise in early 2025?
Gilt yields fluctuate depending on market conditions, which are influenced by a number of factors. One of these is the international bond market.
The US bond market is the most important in the world. Changes in US government bond yields affect other countries’ bond markets too. Since the election of President Trump, US bond yields have risen, with knock-on effects being felt around the world, including in UK gilt yields.
Some analysts think that there was also a UK-specific component to recent changes in gilt yields. They usually cite the additional borrowing announced in October’s Budget (which raise concerns for some about fiscal sustainability) among other factors, including the outlook for UK interest rates (set by the Bank of England).
Gilt yields have since fallen again and as of 29 January were only slightly higher than they were at the beginning of the year. The Library Insight What are gilts? A simple guide explains more about gilts and gilt yields.
About the author: Daniel Harari is a researcher at the House of Commons Library, specialising in the UK and international economies.
Photo by: Kiril Strax. Licensed under CC BY 2.0