• Key policy rate: 4.75% (November 2024)
• Quarterly GDP growth: 0.1% (Q3 2024)
• Full-year GDP growth target: 2.5% (2024)
• Manufacturing Purchasing Managers’ Index reading: 49.9 (November 2024)
• Inflation rate: 2.3% (October 2024) 

The United Kingdom (UK) remains the sixth largest economy in the world. Growth is hard to come by among mature economies in Europe, and the British economy is no exception. 

UK’s unemployment rate has remained low, ranging around 4 per cent to match pre-pandemic levels, but an aging population is hurting labour productivity. The services sector accounts for 80 per cent of gross value added while manufacturing posted a consistently declining share to settle at 9 per cent as of 2023. 

In expenditure terms, household spending contributes 60 per cent of domestic activity but this has stood flat in recent quarters. Government consumption leads the expansion, although this has emerged as a concern as the UK takes on additional borrowing to finance public services. In 2023, net public debt stood at 101.3 per cent of GDP, a level higher than the average debt burden of countries within the European Union. To reduce the budget deficit, the UK government is implementing new taxes and this includes higher levies on fuel. 

In recent months, the UK saw wider trade deficits with falling goods exports and a rising volume of imported goods and services. Inward foreign direct investments have plunged since 2016, a trend widely attributed to the decision of the UK to leave the EU. Across-the-board decreases have been observed for inward investments for new projects, expansion plans, as well as mergers and acquisitions according to UK’s Department of Business and Trade, with Brexit widely seen to have made the British economy less competitive with limited access to other European markets. 

It would be interesting to see how the UK’s economic policies would change under the leadership of the Labour Party after its upset victory against the decades-old dominance of the Conservative Party in July 2024. Prime Minister Keir Starmer has said that the UK will “borrow to invest,” meaning the new  government wants to catalyse private investments by increasing public spending. 

House view: Lundgreen’s recommends staying underweight on UK investments as a low-growth economy. However, the company continues to believe that UK assets hold a slight advantage over EU investment instruments.

Updated as of 20 November 2024