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Interest rate cut on the cards as UK economic growth slows

By Hugh Wilson

Official figures reveal that the UK economy grew at its weakest rate for seven years in November

The pound fell sharply in early trading after official figures showed that UK economic growth in November was at its weakest since 2012.

The economy was just 0.6 per cent larger in November than a year before, according to the UK’s Office for National Statistics (ONS), raising the prospect of an interest rate cut at the end of January.

This was down from 1 per cent in October, while UK gross domestic product (GDP) figures for November alone showed the economy shrinking by 0.3 per cent.

The fall was driven by Britain’s production sector, which includes manufacturing, which shrank by 0.6 per cent in the last quarter. Factory output was hit by Brexit uncertainty in the autumn and the possibility that the UK would crash out of the EU without a trade deal.

Rob Kent-Smith, head of GDP for the ONS, said: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing...

“Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012.”

The stagnating economy makes it more likely that the Bank of England will cut interest rates at its next meeting at the end of the month, according to analysts. The City is now pricing the chances of a cut at 52 per cent.

John Hawksworth, chief economist at PwC, said the UK economy is stuck “in the doldrums”. However, he believes the outlook might improve now that political tensions have eased.

“It is too early to say for sure if economic momentum will pick up in the new year now the political situation is clearer, but our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election,” he said.

FURTHER READING: New Conservative Brexit pledge dampens excitement

FURTHER READING: UK productivity rises by 0.1% after year of contraction

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