Fastest growth in two years lifts UK out of recession
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The UK economy exited last year’s technical recession with faster than expected growth of 0.6 per cent for the first quarter of 2024, providing welcome economic news for Rishi Sunak ahead of the general election.
The quarter-on-quarter growth figure was the fastest since 2021 and boosted by car manufacturing and broad-based growth in services. It beat the 0.4 per cent forecast by the Bank of England and economists polled by Reuters.
The GDP numbers released by the Office for National Statistics on Friday marked the UK’s formal recovery from the shallow recession of the second half of 2023, when output slightly fell for two consecutive quarters, hit by high borrowing costs and prices.
“The UK economy started the year with a bang,” said Henry Cook, economist at the financial company MUFG. He added that the country had “managed to navigate the energy crisis and period of rapid monetary tightening without experiencing a protracted downturn”.
The 0.6 per cent figure also represented the strongest growth for any G7 country with available data, comparing with 0.3 per cent for the Eurozone over the same period and 0.4 per cent for the US.
The news was a boost for Sunak, who last year made economic growth one of his five key pledges to the British public. The prime minister’s Conservatives trail Labour by roughly 20 points in opinion polls.
Jeremy Hunt, chancellor, hailed the GDP data as “proof that the economy is returning to full health for the first time since the pandemic”.
But Rachel Reeves, Labour’s shadow chancellor, said it was “no time for Conservative ministers to be doing a victory lap”, adding that the economy was “still £300 smaller per head” than when Sunak became prime minister.
Growth in the first quarter was driven by a 0.7 per cent increase in services output, suggesting stronger consumer activity as inflation fell. Manufacturing output grew 1.4 per cent, driven by car production, which has grown for six consecutive quarters.
Liz McKeown, ONS director of economic statistics, said the figures showed “broad-based strength across the service industries”, including retail, public transport and health, although construction performed weakly.
Sterling was up 0.1 per cent against the dollar on Friday morning, while investors attributed a probability of about 45 per cent to a rate cut by June.
The BoE said on Thursday that growth was expected to pick up over the next three years. It held interest rates unchanged at a 16-year high of 5.25 per cent but signalled it would cut rates this summer if inflation stayed low.
Yael Selfin, chief economist at KPMG UK, said falling inflation and real terms pay increase would help growth continue for the rest of this year. She added that economic prospects had also improved in continental Europe, which could lead to a recovery in exports.
The quarterly GDP figure was boosted by 0.4 per cent month-on-month growth for March, when services such as wholesalers, the health sector and hospitality all did well. March output was much stronger than the 0.1 per cent forecast for the month by economists polled by Reuters and followed a 0.2 per cent increase in February.
“March’s surprisingly strong rise in GDP was the fourth rise in five months and showed that the recovery has been gathering momentum more quickly than we had thought,” said Ruth Gregory, economist at Capital Economics.
She added that the economy was only marginally up from the first three months last year so “is still fairly weak”, but early indicators suggested growth continued in April.
The first quarter also marked the return to growth for per capita output. The ONS said GDP per head increased by 0.4 per cent in the first three months of the year, following seven consecutive quarters without positive growth. GDP per capita is estimated to be 0.7 per cent lower than in the same quarter a year ago.
Household consumption returned to growth after contracting in the previous two quarters with rising spending in housing, hospitality and recreation.
Overall the UK economy has grown 1.7 per cent since the fourth quarter of 2019, immediately before the pandemic. That is far less than the 8.7 per cent growth in the US for the same period and the 3.4 per cent increase in the Eurozone.
This article’s reference to Eurozone growth since 2019 has been updated to reflect the changing membership of the single currency area
Additional reporting by Mary McDougall
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