Key Takeaways
- The UK economy grew by 0.3% in November, exceeding expectations and rebounding from a contraction in October.
- The growth is attributed to a surge in manufacturing, particularly in the automotive sector, following a cyber-attack on Jaguar Land Rover.
- The UK’s construction sector has suffered its worst quarterly slump in over two and a half years, with a 1.1% decline in output.
- South East Water is under investigation by Ofwat for its failure to provide adequate water supply to customers in Kent and Sussex.
- Goldman Sachs has reported a 9% increase in revenues and a jump in profits, with earnings per share rising to $51.32.
- The FTSE 100 has hit a new record high, driven by strong gains in the financial sector.
Introduction to the UK Economy
The UK economy has returned to growth, with a 0.3% expansion in November, according to the Office for National Statistics. This growth is faster than expected, with City economists having predicted a 0.1% increase. The rebound is attributed to a surge in manufacturing, particularly in the automotive sector, following a cyber-attack on Jaguar Land Rover. The ONS has also revised September’s growth figures higher, showing that the economy did not shrink that month as initially reported.
South East Water Crisis
The boss of South East Water, David Hinton, is facing criticism for his handling of the company’s failure to provide adequate water supply to customers in Kent and Sussex. The company has blamed recent freezing weather for creating leaks in its ageing pipe network, but Hinton is under pressure to resign over the outages. The Green Party has called for the company to be taken into public ownership, citing its failure to invest in infrastructure and prioritize customer needs over shareholder profits. Ofwat has launched an investigation into the company’s compliance with its licence conditions, and the environment secretary has called for a review of the company’s operating licence.
Global Economic Trends
The US labor market has shown signs of cooling, with a decrease in the number of Americans filing new claims for unemployment benefits. However, this decrease suggests that US companies are continuing to hold onto workers, despite recent signs of a slowdown. In Germany, the economy has returned to growth, with a 0.2% expansion in the final quarter of 2025. This growth is attributed to increased household consumption and government expenditure, although investment fell. The German economy had previously contracted for two years, making this growth a welcome sign of recovery.
Financial Sector Performance
Goldman Sachs has reported a strong performance, with a 9% increase in revenues and a jump in profits. The company’s earnings per share rose to $51.32, up from $40.54 a year earlier. The FTSE 100 has also hit a new record high, driven by strong gains in the financial sector. However, the UK property sector is experiencing a soft patch, with demand for mortgages expected to decrease in the first quarter of the year. UK housebuilder Taylor Wimpey has reported a decline in demand, particularly among first-time buyers, while estate agent Foxtons has seen a slowdown in sales.
Construction Sector Slump
The UK’s construction sector has suffered its worst quarterly slump in over two and a half years, with a 1.1% decline in output. This decline is attributed to a decrease in new work and repair and maintenance, with private commercial new work falling by 4.5%. The sector is expected to continue to struggle, with the impact of past rate hikes still feeding into the mortgage market. Analysts at ING have described the construction sector as "having a shocker", with new work across housing and commercial property slumping.
Interest Rate Outlook
The UK’s stronger-than-expected growth in November has reduced the pressure on the Bank of England to lower interest rates. The economy’s return to growth has given rate-setters comfort over economic conditions, making a February interest rate cut less likely. The money markets indicate that there is only a 7% chance of a rate cut in February, with a cut not fully priced in until June. However, the economy is expected to slow down in 2026, with softer consumer spending and higher unemployment likely to weigh on growth.
