BUSINESS LIVE: GDP grows 0.1%; Taylor Wimpey flags greater prices; CAB Payments cuts employees

Lindsay James, investment strategist at Quilter Investors:

‘While the risk of recession remains modest for now, the UK is not yet out of the woods, and in the three months to November the economy flatlined.

“This weak growth can in part be attributed to the fallout of the government’s budget, which saw consumers hit pause on spending. As we move further into this year we could see an even bigger impact.

‘Businesses will soon feel the effects of increased national insurance contributions, the costs of which are likely to be passed on to employees. Wage growth is expected to take a hit, and spending could be dampened further as a result.

‘In addition, Trump’s inauguration is nearing, and the true effects of his policies will start to be felt later in the year. Hopefully, the UK will be relatively sheltered from the impact of his anticipated tariffs compared to some of its peers, but there is still a great degree of uncertainty on the horizon.

‘Generally speaking, markets have been sceptical about the prospect of further rate cuts in the UK in the early part of this year, and less than two quarter point cuts are being priced in for the full year. The Bank of England stood alone in its decision to hold rates in December while the ECB and Federal Reserve forged ahead with cuts. However, should the economy fail to pick up at least some momentum and the UK falls into a recession, it may be forced to change tack.

‘It appears the Chancellor has a large task ahead, given she is banking on growth to drive the economy.’

A US activist trying to take over seven London-listed investment trusts is ‘betting on complacency’ from thousands of private shareholders to secure victory, a fund manager has said.

Saba Capital wants to replace the boards of the trusts with its own nominees.

The hedge fund, which is run by Wall Street financier Boaz Weinstein, has called meetings at seven firms – Herald Investment Trust, Baillie Gifford US Growth, Edinburgh Worldwide, European Smaller Companies, Keystone Positive Change, CQS Natural Resources and Henderson Opportunities – to ask shareholders to vote on its plans.

Thomas Pugh, UK economist at RSM UK:

‘The economy returned to growth in November, but barely, growing by just 0.1% m/m. This makes it very likely that the economy won’t have grown at all in the second half of the year. That will only pile further pressure on Chancellor Reeves.

‘However, the combination of weaker-than-expected inflation and economic growth means an interest rate cut in February is now a sure bet.

‘If there is a positive to take from today’s data, it’s that those industries that rely on consumer spending did reasonably well.

‘However, that was about the total of the good news. Admittedly, we can blame some of the weakness on temporary factors again, people and businesses pulling work forward to get ahead of the Budget meant there was a big 2.6% fall in accounting and consultancy activity.

‘But manufacturing output fell by 0.3% m/m, its third consecutive fall, taking it to its lowest level since the middle of 2022, and there was little sign of growth elsewhere in the economy.

‘Overall, the economy stagnated in the second half of last year. There are still good reasons to expect growth to pick up this year.

‘The increase in government spending and investment announced in the Budget should start to flow through and the early signs of a revival in consumer spending should continue. But the lack of momentum going into the year raises the risks that 2025 under performs expectations.’

A top Bank of England official last night said interest rates may need to be cut as many as six times this year to stave off recession fears as Labour’s jobs tax bites.

Alan Taylor, a member of the Bank’s rate-setting Monetary Policy Committee, said that ‘with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing’.

Inflation worries eased on both sides of the Atlantic yesterday, boosting markets and providing respite to beleaguered Chancellor Rachel Reeves.

London-listed money transfer group CAB Payments plans to slash 20 per cent of staff as it aims to cut costs, and invest in artificial intelligence and automation.

The group cited weak trading and higher national insurance contributions by employers after the Autumn Budget.

‘We can do more with less,’ CEO Neeraj Kapur said in a statement on Thursday.

The company said its performance since October has been hit by a stronger dollar and political uncertainty that has affected demand for cross-border payments.

Taylor Wimpey has flagged increased cost pressure as the British housing sector navigates affordability and broader economic concerns.

British homebuilders, which grappled with lacklustre demand throughout last year, are potentially facing pressure from slower-than-expected reduction in rate cuts.

‘While market conditions are uncertain, and we continue to monitor the impact of mortgage costs on affordability, we enter 2025 with a strong order book and land position,’ CEO Jennie Daly said in a statement.

The British economy returned to growth by November, but output was weaker than expected, fresh data from the Office for National Statistics shows.

GDP edged 0.1 per cent higher in November, missing forecasts of 0.2 per cent, but marking an improvement after two consecutive months of contraction.

The data, following weaker than expected inflation data on Wednesday, may strengthen the case for the Bank of England to resume cutting interest rates.