By David Milliken and William Schomberg
LONDON (Reuters) - Britain's economy grew slightly more strongly than expected in November but remains at risk of slipping into a mild recession, a potential blow for Prime Minister Rishi Sunak before an election expected in 2024.
Gross domestic product (GDP) expanded by 0.3% after a fall of 0.3% in October, slightly beating economists' forecasts for 0.2% growth in a Reuters poll.
But output shrank by 0.2% in the three months to the end of November, figures from the Office for National Statistics (ONS) showed on Friday, more than the expected 0.1% fall.
A contraction or possibly even flat output in December could lead to a second consecutive quarter of falling output, the ONS said. This would place the economy in a shallow recession.
"It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023," Investec economist Sandra Horsfield said. "In either case, a better description of the trend might be stagnation. The recession, if it did occur, looks to have been as mild as they come."
Sterling was little changed against the U.S. dollar after the data, but government bond yields fell as markets priced in a slightly higher chance that the Bank of England (BoE) will begin to cut interest rates in May.
Britain's economy struggled to gain momentum in 2023, as households were squeezed by rapid inflation and the highest BoE interest rates in 15 years.
EUROPEAN WEAKNESS
Economic output in November was only 0.2% higher than a year earlier and has grown by just 2.5% since 2019.
Much of Europe's economy is weak too, due partly to the after-effects of Russia's full-scale invasion of Ukraine in February 2022.
Germany's economy shrank in the third quarter, and data on Tuesday showing an unexpectedly big drop in industrial output in November raised recession fears in Europe's largest economy.
By contrast, the U.S. economy grew at an annualised rate of more than 5% in the third quarter.
"The longer-term picture remains one of an economy that has shown little growth over the last year," ONS chief economist Grant Fitzner said after the British GDP numbers were published.
"GDP bounced back in the month of November, however, led by services with retail, car leasing and computer games companies all having a buoyant month."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, described it as a "coin toss" whether output would fall in the fourth quarter.
While surveys have pointed to a further recovery of business activity in December, renewed doctors' strikes would reduce healthcare provision and retail sales looked patchy, he said.
HOPES FOR BETTER 2024
The government's Office for Budget Responsibility (OBR) has forecast growth of 0.6% for 2023 and 0.7% for 2024 - a weak backdrop for the national election that expected in the second half of 2024.
Some economists see more scope for a pick-up in growth this year than the OBR or the even gloomier BoE. Inflation has dropped below 4% and mortgage rates have fallen as lenders expect the central bank to cut borrowing costs later this year.
"The economy should shake off its torpor in 2024," Tombs said, predicting wage growth and lower inflation and interest rates would boost households' real disposable income by 2%.
Finance minister Jeremy Hunt, responding to Friday's data, said inflation was still weighing on growth but the tax cuts for businesses and workers he announced in November would boost Britain's longer-term prospects.
Rachel Reeves, the opposition Labour Party's would-be finance minister, said the weak growth meant Britain's overall tax burden as a share of GDP remained the highest in 70 years.