This morning the Office for National Statistics (ONS) confirmed that the UK confined its technical recession to 2023. The economy grew by 0.6 per cent in the first three months of the year, thanks in large part to stronger-than-expected growth in March, which reached 0.4 per cent. Both numbers were larger than expected (the consensus was for 0.4 per cent and 0.1 per cent respectively), as growth figures for February were also revised upwards, from 0.1 per cent to 0.2 per cent.
Services output was the ‘largest contributor’ to the economic bounceback, growing at 0.7 per cent in the first three months of the year. Transportation and storage were the ‘largest positive contributor’ to the rises of services – growing at 3.7 per cent – followed by professional, scientific, and technical activities – growing at 1.3 per cent – and administration and support services – growing at 1.7 per cent. The ONS also notes that there was no industrial action in March, compared with the five days of strikes in February, which helps to explain March’s stronger showing.
Forecasters are taking the news as an indication that the UK economy’s performance this year could be better than anticipated, including outpacing the Office for Budget Responsibility’s latest prediction of 0.8 per cent growth. The latest forecasts from the IMF and the OECD (which most recently downgraded its predictions for the UK economy this year) are already looking too gloomy – and very possibly out of date.
That’s not to say that today’s GDP figures guarantee an impressive year for growth overall. Capital Economics puts them into perspective: ‘the economy is still fairly weak’ it notes, as today’s 0.6 per cent increase announcement followed a contraction of 0.3 per cent in Q4 last year. Moreover, today’s Q1 figures are ‘only 0.2% higher than a year ago’. Still, the forecaster predicts that ‘recovery will be stronger than most forecasters anticipate’, but not so rapid that the Bank of England is forced to further delay plans to cut interest rates. Meanwhile over at Panmure Gordon, chief economist Simon French is predicting a growth rate three times stronger than the consensus. ‘I am feeling more comfortable,’ he writes, ‘about my growth estimate of 1.2 per cent for 2024 vs consensus at 0.4 per cent.’
Of course the people with the biggest smiles are in Whitehall, where Rishi Sunak has used this morning’s figures as more evidence that the economy has ‘turned a corner’ – something he is hoping voters don’t just hear from politicians, but feel for themselves. The timing could not be better for the Prime Minister, having been accused earlier this week by shadow chancellor Rachel Reeves of ‘gaslighting’ the public into thinking the economy was faring better than it is.
There is clearly hesitation to sell the news too hard. ‘We know things are still tough for many people,’ Sunak noted, ‘but the plan is working, and we must stick to it.’ Headline GDP figures may be telling a more positive story, but GDP per capita still sits below pre-pandemic levels – a tough economic reality the government cannot gloss over.
But today’s news – coupled with further hints from the Bank of England yesterday that rates may start to come down over the summer – is exactly the kind ministers were hoping to receive, as they quietly push the narrative of a recovery summer. The problem remains that it may be several summers too late.
