Overall, there was strong economic growth in the first half of 2024. Economic growth has slowed in the second half of the year. In the last few months of the year, business confidence has declined.
This economic update looks back at the economy over 2024 and how different industries have fared.
How strong was GDP growth in 2024?
Economic growth in 2024 began relatively strong, with GDP growing 0.7% in the first quarter and 0.5% in the second quarter. Growth has declined in the second half of the year, however, with GDP growing a modest 0.1% in the third quarter. Early indicators are pointing towards similar magnitude or no growth in Q4.
Monthly GDP data, which is more up to date but more volatile than the quarterly data, recorded a 0.1% monthly fall in GDP in October. The October GDP data was collected before the Chancellor’s Budget at the end of October, and included a period of uncertainty while businesses and consumers waited for the Chancellor’s decisions.
Which industries have grown the most over the last year?
Economic growth in 2024 has been driven by services industries, which together make up 80% of the UK’s economic output.
Professional, scientific and technical services, which together include law, accountancy, management consultancy, architecture, engineering and other professional services, have been among the few sectors showing consistent growth throughout 2024. This can be seen in the chart below.
Professional services, life sciences, and digital and technology are among the eight “high-growth sectors” highlighted in the government’s industrial strategy green paper.
Which industries have stalled?
In contrast, consumer-facing services such as retail, hospitality (accommodation and food services) and recreation have seen little to no growth this year. Output has largely stalled since the pandemic for these sectors, as shown in the chart below.
These industries are particularly exposed to consumer confidence, which fell considerably during the pandemic and in 2022 when inflation was high. Consumer confidence was improving in the first half of 2024, with GfK’s confidence index returning to pre-pandemic levels in July. Confidence has fallen again in the latter half of the year to slightly above 2023 levels, as shown in the chart below.
Retail sales fell by 0.7% in October and the British Retail Consortium has reported another fall in November, suggesting a nervous outlook for the sector, which relies on increased spending over the festive period.
Businesses in retail and hospitality sectors have argued that Budget measures that increase employment costs (higher employer National Insurance contributions (NICs) and increases to the national living wage) disproportionately affect them as high users of part-time and lower-paid workers.
Other industries, including manufacturing and construction, also experienced little to no growth in 2024, although the causes of slow or stalled growth in some sectors are not always clear.
How strong is business confidence?
Business surveys have indicated lacklustre business activity in November and December, and a change in mood from the optimism seen earlier in the year and at the time of the general election.
For example, the closely watched S&P Global purchasing managers’ index (PMI) – a survey of business intentions – has indicated that services industries continued to grow in November and December but at slowing rates since August. Manufacturing activity has been falling since October.
Slowing business activity in the PMI survey came alongside falling business confidence and rising prices. Businesses widely reported concerns about rising employment costs following the Budget, with responses suggesting that businesses were planning to hire fewer new workers. Data from the Bank of England’s Decision Maker Panel survey found that around half of the firms polled were expecting to lower profit margins (59%), raise prices (54%), or lower employment (54%) in response to increasing employer NICs.
The Bank of England said in its December interest rates decision that it was uncertain how the Budget measures were affecting growth. It said that while business sentiment and activity were subdued for now, this was still expected to improve in 2025.
What happened to inflation and interest rates?
Inflation has been broadly falling throughout 2024 and, as we explained last month, has been expected to increase in the near term. The Consumer Prices Index (CPI) increased to 2.6% in November, up from 2.3% in October.
Annual wages excluding bonuses grew by 3.0% in the three months to October (adjusted for inflation), up from 2.7% in the three months to July. This was more than economists expected, and in addition to business surveys reporting price rises, presents a challenge to the Bank of England’s efforts to lower inflation.
In December, the Bank held interest rates at 4.75%, as was widely expected.
Is there evidence of a slowly cooling labour market?
It is too early to say what, if any, effect rising employment costs will have on the job market. Payrolled employee jobs rose by 0.3% across the year to November, according to the Office for National Statistics’ early estimate based on data from HM Revenue and Customs (and which is subject to revision). Year-on-year growth in payrolled employment has been falling steadily since April 2022, as shown in the chart below; it is now lower than at any point since at least 2016.
Job vacancies declined 3.8% in the three months to November compared with the previous quarter, continuing a trend of falling vacancies that has been ongoing since 2022. This is shown in the chart above. Falling vacancies are a sign of firms reducing their demand for labour. Vacancies are now close to pre-pandemic levels, and will be closely watched in the coming months.
About the author: Georgina Hutton is a researcher at the House of Commons Library.
Photo by: Chloe Evans via Unsplash