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The UK economy escaped last year’s technical recession with faster-than-expected growth of 0.6% in the first quarter of 2024, providing welcome economic news for Rishi Sunak ahead of the crisis. elections.
The quarterly growth figure was the fastest since 2021 and was driven by auto production and broad-based growth in the services sector. It beat the 0.4% forecast of the Bank of England and economists polled by Reuters.
The GDP The figures published by the Office for National Statistics on Friday mark the UK’s official recovery from a mild recession in the second half of 2023, when output fell slightly for two consecutive quarters, reflecting impact of high borrowing costs and prices.
Henry Cook, economist at financial company MUFG, said: “The British economy started the new year successfully. He added that the country had “managed to overcome the energy crisis and the period of rapid monetary tightening without experiencing a prolonged recession”.
The news is a boost for Sunak, who last year made economic growth one of his five key commitments to the British public. The prime minister’s Conservative Party is leading the Labor Party by about 20 points in opinion polls.
Jeremy Hunt, the prime minister, said: “There is no doubt it has been a difficult few years, but today’s growth figures are evidence that the economy is returning to health for the first time first since the pandemic.”
But Rachel Reeves, the Labor shadow chancellor, said “this is not the time for Conservative ministers to take a victory lap. The economy is still £300 smaller per head than when Rishi Sunak became chancellor.”
Growth in the latest quarter was driven by a 0.7% increase in services output, suggesting stronger consumer activity as inflation eased. Manufacturing output increased by 1.4%, thanks to six consecutive quarters of growth in automobile output.
Commenting on the GDP figures, Liz McKeown, director of economic statistics at the ONS, said: “There is broad-based strength in the services sectors with retail, public transport and transport as well as health all work well. Automakers also had a good quarter. These were only slightly offset by another weak quarter for construction.”
Sterling rose 0.1% against the dollar on Friday morning, while investors kept the probability of a rate cut in June at around 45%.
On Thursday, the BoE said that after last year’s weakness, economic growth is expected to recover over the next three years. Central bank keep interest rates unchanged at a 16-year high of 5.25% but signaled a rate cut this summer if inflation stays low.
Yael Selfin, chief economist at KPMG UK, expects growth to continue for the rest of this year as “falling inflation and rising real wages should help offset some of the damage to household income and household consumption support”. She added that growth prospects have also improved in Europe, which could lead to a recovery in exports.
The UK data comes after the Eurozone recorded 0.3% growth in the first quarter and the US recorded 0.4% growth. The UK’s numbers are the strongest among G7 countries with available data.
In March, output increased 0.4% from the previous month, led by services with wholesalers, the healthcare sector and hotels all performing well. The figure was much stronger than the 0.1% forecast by economists polled by Reuters and followed 0.2% growth in February.
“March’s surprisingly strong GDP increase was the fourth in five months and suggests the recovery is gaining momentum faster than we thought,” said Ruth Gregory, economist at Capital Economics.
She added that economy only a slight increase compared to the first three months of last year so “still quite weak”, but early indicators suggest growth continued in April. She said she expected “the recovery to be stronger than most forecasters predict.”
The first quarter also marked a return to growth in per capita output. The ONS said GDP per capita increased by 0.4% in the first 3 months of the year, after 7 consecutive quarters of no positive growth. This number is estimated to be 0.7% lower than the same period last year.
Household consumption also returned to growth after falling in the previous two quarters due to increased spending on housing, hotels and entertainment.
Compared to pre-pandemic levels in the fourth quarter of 2019, the UK economy grew by 1.7%, well below 8.7% growth in the US and 3.8% growth in the Eurozone .
Additional reporting by Mary McDougall
