Jeremy Hunt knows there is little to celebrate from modest economic growth during November.
The 0.3% increase in gross domestic product follows a drop of 0.3% in October, and the three-month figure – which is considered a more reliable and certainly less volatile measure of economic growth – showed a 0.2% contraction to the end of November.
The services sector was moribund in the three months to November, while production output fell by 1.5% and construction fell by 0.6% over the same period.
Simon French, the chief economist at the stockbroker Panmure Gordon, said the single-month figure showed there was “a decent chance” the UK had again avoided a recession.
Sandra Horsfield, a UK economist at Investec, was less sure: “It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023.”
Both were looking through a microscope at small percentage points either side of zero, making it clear that, for the economy and the chancellor, interest rate cuts by the Bank of England cannot come soon enough.
Without lower borrowing costs, a period of zero growth stretching back more than a year is likely to continue well into 2024, and with an election less than a year away, that spells disaster for the Conservative administration.
Hunt said he was content for growth to remain low while all efforts were made to bring down inflation.
The chancellor said this with the belief the battle against rising prices was almost won after a flurry of revisions by City economists of inflationary trends.
This re-examination of the influences on the consumer prices index revealed price growth will probably drop below the Bank of England’s 2% target in April, although prolonged disruption to shipping in the Red Sea will raise concerns about a fresh inflationary threat. Oil prices were up almost 4% on Friday, at just above $80 a barrel.
Next month, when they meet in the Bank’s Threadneedle Street headquarters, members of the monetary policy committee are likely to agree that their previous forecasts were too pessimistic and some of the drivers of inflation were weaker than previously estimated.
They will come under severe pressure to begin cutting interest rates from 5.25%, maybe as early as May, easing the financial burden on households and businesses.
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Hunt will also benefit because lower inflation and lower interest rates will cut his debt bills and give him more room to carry out the tax cuts his party craves.
Households and businesses may crank up their spending in the second half of the year and give the economy a boost.
Jonathan Hall, a member of the Bank of England’s financial policy committee, said in parliament last week that he was concerned the drop in inflation and possible cuts to interest rates would create a period of exuberance and a dangerously high level of borrowing.
That might be a worry for the MPC and trigger a return of high interest rates, but that would be a problem for the next chancellor.
