The Weekly Echo (17/12/24)

In this week’s inaugural edition, we dive into the most pressing global and domestic economic developments shaping the headlines. From the UK's surprising back-to-back GDP contractions and the ripple effects of a government collapse in France to escalating US-China tensions and a looming energy crisis in Northern Europe, we’ve got it all covered. Plus, we explore the alarming statistics behind the UK’s employment challenges, shedding light on the structural issues that could shape the country’s future. As always, we break these complex issues into clear, concise insights—delivered in the signature Economic Echo way.

UK GDP Shrinks by 0.1%

The UK economy contracted by 0.1% in October 2024, marking the first consecutive GDP (total output) decline since the pandemic. Flatlined growth in the services sector combined with disappointing outputs in production and retail contributed to this downturn. Economists had forecast a modest increase, but the data underscores vulnerabilities in the UK’s growth strategy, raising concerns about a potential recession under Labour’s leadership. A recession is two consecutive negative quarters of GDP growth, i.e. 6 months of decline. This decline tests Labour’s ambitious economic pledges, including housing and pension reforms. For more info on the new Labour budget, check out our more detailed story:

A New Chapter for France: Prime Minister Appointed Amid Crisis

Following the collapse of the ex-PM Barnier’s government, France appointed a new Prime Minister, Francois Bayrou, to navigate a period of political turmoil. This leadership change comes after a legislative deadlock, rising public discontent over pension reforms, and economic stagnation. While the new administration promises stability, challenges remain in balancing public anger with much-needed economic reforms. Accompanied by issues surrounding the French budget, investors keenly observe how France manages this pivotal moment. We wrote a full article on the collapse of the French government. Head to our website to check it out!

US-China Tensions: A Looming Trade War?

As we edge closer to the end of the Biden administration, the world is preparing for Trump’s reintroduction as President of the US. Trump has wasted no time making headlines by proposing radical tariffs on neighbouring countries and economic threats. Geopolitical tensions between the US and China have escalated, with both nations imposing fresh tariffs on key imports. Concerns about semiconductor supply chains, rare earth mineral access, and a renewed focus on economic decoupling (reducing reliance on foreign nations) dominate the narrative. These developments threaten global trade stability, prompting fears of a deeper trade war. Businesses and consumers worldwide brace for potential ripple effects. Keep a lookout in January for when we will write a dedicated edition on Trump and what he might achieve for the US.

Energy Fears Resurface Amid European Cold Snap

As a cold snap grips northern Europe, fears of an energy crisis resurface. Increased energy demand, strained gas supplies, and elevated prices highlight vulnerabilities in Europe’s energy strategy. Countries like Germany and the UK are particularly exposed, having phased out significant domestic production (what they produce themselves). The UK closed the last of its coal-powered energy stations, a landmark achievement in the steps to fully renewable energy, but have they done so too early, leaving UK consumers at risk of rising prices? Policymakers are urging for rapid investments in renewables and efficiency measures to prevent future crises.

What does this mean for you?

• Current Bills: As of late 2024, the UK’s typical annual energy bill averages around £1,923 but could rise by £300–£500 if wholesale prices spike again.

• Fuel Costs: Gas prices for heating and electricity production remain dominant. In severe scenarios, costs may increase by 20–30%.

• Long-Term Savings Potential: Improved energy efficiency (e.g., home insulation) could cut your annual bills by up to £500, highlighting the importance of sustainable solutions.

New Trade Deals - A turning point for the UK?

As of December 15th, the UK officially became a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a major trade pact between 11 countries across the Pacific Rim. These countries include:

• Australia

• Brunei

• Canada

• Chile

• Japan

• Mexico

• New Zealand

• Peru

• Singapore

• Vietnam

This makes the UK the first non-founding member, and the pact accounts for 13% of the world’s income. While the UK government predicts the deal could boost the economy by £2 billion annually, this is just 0.08% of GDP over 10 years.

The UK's departure from the European Union, or Brexit, marked a significant shift in trade relationships. In 2020, after a referendum in 2016, the UK left the EU, a political and economic union of 27 European countries with shared trade, laws, and policies. Brexit allowed the UK to regain control over its own laws, borders, and trade agreements.

Following Brexit, the UK sought new trade agreements, and the CPTPP offers benefits such as:

• Lower Tariffs – Taxes imposed on imported goods will be reduced, making it cheaper for UK businesses to import from these countries.

• Greater Market Access: UK businesses will have more opportunities to sell goods and services in the CPTPP member countries.

The government estimates that sectors like financial services, manufacturing, and food and drink will benefit most from the deal. However, it’s important to note that some key industries will remain protected.  Protectionism is a strategy where a country limits trade to protect its industries from foreign competition, often through tariffs or restrictions.

On the positive side, this deal places the UK in a strong position to take advantage of rapidly growing markets in the Pacific region, particularly Vietnam, which has seen significant growth in recent years. Additionally, the CPTPP is attracting new members, which could expand opportunities for the UK even further.

In short, the CPTPP offers the UK new opportunities in growing markets, but the economic impact will be modest, and the UK must balance growth with its standards on environmental and social issues.

Thanks for reading the first weekly edition! Expect a new weekly edition delivered straight to your inbox at 10 am (GMT) every Tuesday. We’d love to hear your thoughts—whether it’s feedback on this edition or ideas for stories you’d like us to explore in future issues. Your input helps shape The Economic Echo, and if you enjoy our content, please help us by sharing it with your friends, family and colleagues!

Best wishes,

Harry & Reika

Co-Founders, Echonomics