UK economy returns to modest growth at start of 2024
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[March 13, 2024] By
David Milliken and Suban Abdulla
LONDON (Reuters) -Britain's economy returned to growth in January after
entering a shallow recession in the second half of 2023, offering some
relief to Prime Minister Rishi Sunak ahead of an election expected this
year, official data showed.
Gross domestic product grew by 0.2% month-on-month - boosted by a
rebound in retailing and house-building - after a fall of 0.1% in
December, in line with economists' expectations in a Reuters poll.
"The economy picked up in January with strong growth in retail and
wholesaling," Liz McKeown, a director at the Office for National
Statistics, said. "Construction also performed well with house-builders
having a good month, having been subdued for much of the last year."
However, it is too early to know for certain if the economy is no longer
in recession. GDP shrank by 0.3% in the final quarter of 2023 and 0.1%
in the quarter before - meeting the technical definition of recession
widely used in Europe.
Britain's economy has been very sluggish since its initial recovery from
the COVID-19 pandemic, beset by a surge in the cost of energy imports
from Russia's invasion of Ukraine and, more recently, by high Bank of
England interest rates.
But with inflation at 4% in January, down from double-digit rates in
much of last year, and forecast to return to its 2% target soon, the
squeeze on household spending is easing and the BoE is starting to
consider when to cut interest rates.
Sterling fell against the U.S dollar and the euro shortly after the GDP
figures were released, and investors added to their bets of a rates cut
in June, although the first one is not fully priced in until August.
WEAKER THAN A YEAR AGO
Wednesday's data showed that GDP in January was 0.3% lower than a year
earlier and shrank by 0.1% in the three months to January, both in line
with economists' forecasts.
"While the last few years have been tough, today's numbers show we are
making progress in growing the economy," finance minister Jeremy Hunt,
said.
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Customers buy fresh produce from a fruit and vegetable stall on
Surrey Street market in Croydon, south London, Britain, February 26,
2024. REUTERS/Hannah McKay/files
Rachel Reeves, the opposition Labor Party's would-be finance
minister, said the Conservatives under Sunak and his predecessors
had presided over "14 years of economic decline" and were to blame
for the most recent recession.
Labor is running far ahead of the Conservatives in opinion polls
with an election expected in the second half of this year. The
opposition party is now seen as more trusted to run the economy than
the Conservatives, according to some polls.
The government's Office for Budget Responsibility last week forecast
an expansion of 0.8% in 2024, more than the BoE's projection in
February of around 0.25% growth.
Business surveys have pointed to a pick up with purchasing managers'
index data rising to a nine-month high in February. Previously
published ONS data for January showed the biggest retail sales jump
since COVID restrictions were lifted in 2021.
Wednesday's figures showed that construction output - which is often
volatile - jumped by 1.1% in January, its biggest monthly rise since
June and led by a 2.6% rise in private-sector house-building, which
had been depressed by high interest rates.
Ruth Gregory, deputy chief UK economist at Capital Economics, said
the data may not move the dial much for the BoE.
"A 0.1% quarter-on-quarter rise in Q1 would match the Bank's
forecast and with domestic inflationary pressures fading, we think a
rate cut this summer - perhaps in June - is still the most likely
outcome," Gregory said.
(Reporting by Suban Abdulla and David Milliken; Editing by Kate
Holton and Angus MacSwan)
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