Britain bounced back strongly from a shallow recession, providing some relief for prime minister Rishi Sunak who has so far struggled to deliver on his promise to grow the economy.
Gross domestic product jumped 0.6 per cent in the first quarter compared to the previous three months, the Office for National Statistics said Friday. That was the best reading since late 2021, when the UK loosened lockdown restrictions, and higher than the 0.4 per cent expansion forecast by economists.
Shoppers returned to stores, and a lack of strikes boosted transport in the first quarter. Business investment also was much stronger than expected. Growth in the month of March alone was 0.4 per cent, well above expectations due to a bounce back in both services and manufacturing.
“The worst is behind the UK economy,” said Yael Selfin, chief economist at KPMG UK. “Forward looking indicators point to further momentum in the coming months, consistent with our view that.”
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The pound slightly extended gains after the data, but the move was soon pared. The currency was up less than 0.1 per cent to $1.2533.
The figures marked a decisive end to the mildest recession in almost 70 years – a decline of 0.4 per cent peak-to-trough in the second half of last year. The reading may complicate the Bank of England’s consideration about when to ease interest rates, with stronger growth potentially feeding inflationary pressures officials are still not certain are contained.
“All the signals since the start of this year certainly suggest things are finally starting to perk up,” Liz Martins, senior economist at HSBC, said on Bloomberg Radio. “The worry would be that if those rate cuts aren’t delivered, then the basis for this recovery is weakened, and maybe it takes out some of the momentum.”
An upturn in economic activity is a rare bit of good news for the ruling Conservative Party after a difficult few weeks. It suffered heavy losses in the local elections, including a flagship mayoralty in the West Midlands, and has seen two of its MPs defect to the opposition Labour party.
Chancellor of the exchequer Jeremy Hunt said the figures were “proof that the economy is returning to full health.”
“For families who have been having a really tough time, this is an indication that difficult decisions we’ve taken over recent years are finally beginning to pay off, and we need to stick with them,” Hunt said on Sky News.
While Sunak made spurring growth one of his key pledges after entering Number 10, the economy has struggled in the face of the worst cost of living crisis in generations and high interest rates.
Sunak and Hunt have claimed the economy turned the corner in early 2024 as they attempt to quell discontent among members of Parliament over the Conservatives’ dire polling before a national vote. With the Tories facing a 20-point plus deficit behind the opposition Labour party, Sunak has pointed to sharp falls in inflation, lower energy bills and growing wages as signs that the economy is back on track.
“With falling inflation boosting households’ spending power, as well as opening the way for a reduction in interest rates in the months ahead, the economy should be able to sustain some momentum through the year,” said Ben Jones, lead economist for CBI, Britain’s biggest business lobby group.
Output per head grew 0.4 per cent in the first three months of the year, ending a series of seven consecutive quarters without positive growth. Even so, GDP per head is estimated to be 0.7 per cent lower than the same quarter a year ago.
A 0.7 per cent increase in services output drove the economy’s rebound in the first quarter. It ended three straight quarters of decline for the UK’s largest sector with households’ spending power being repaired by the cost of living crisis fading. However, there was mixed news outside of services with industrial production growing 0.8 per cent while construction output slipped 0.9 per cent.
“This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good,” Labour’s chancellor-in-waiting, Rachel Reeves, said in a statement. “The economy is still £300 smaller per person than when Rishi Sunak became prime minister.”
The ONS said imports into the UK had not been affected by disruption in the Middle East and the Red Sea. The UK’s trade deficit, when excluding precious metals, narrowed in the first quarter to £7.8 billion and has been steadily declining since the start of 2022.
“This is the start of a much brighter period for the UK economy than the last four years,” said Thomas Pugh, economist at RSM UK. “Rising real earnings, tax cuts and lower interest rates will give households disposable income a significant boost in the second half of this year, and a recovery in consumer confidence will ensure that most of that increase in income is spent.” – Bloomberg
