UK exits recession with fastest growth in nearly three years
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[May 10, 2024] By
Suban Abdulla and David Milliken
LONDON (Reuters) -Britain's economy grew by the most in nearly three
years in the first quarter of 2024, ending the shallow recession it
entered in the second half of last year and delivering a boost to Prime
Minister Rishi Sunak ahead of an election.
Gross domestic product expanded by 0.6% in the three months to March,
the Office for National Statistics said, the strongest growth since the
fourth quarter of 2021 when it rose by 1.5%.
The data was welcomed by Sunak who said the economy had "turned a
corner", while the opposition Labour Party, which has a large lead in
opinion polls, accused Sunak and finance minister Jeremy Hunt of being
out of touch.
"There is no doubt it has been a difficult few years, but today's growth
figures are proof that the economy is returning to full health for the
first time since the pandemic," Hunt said.
Labour contested those claims.
"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,"
said Rachel Reeves, who hopes to succeed Hunt as finance minister after
an election expected later this year.
First-quarter economic growth was faster than the 0.3% in the euro zone
and the 0.4% quarterly growth in the United States.
However, Britain has still had one of the slowest recoveries from the
effects of the coronavirus pandemic among major advanced economies,
exacerbated by a surge in European natural gas prices after Russia
invaded Ukraine in 2022.
At the end of the first quarter of 2024, the country's economy was just
1.7% bigger than its level in late 2019, before the pandemic, with only
Germany in the G7 faring worse.
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"Despite the better near-term outlook, the improvement in GDP growth
looks likely to be constrained by the ongoing weakness in productivity
growth as well as reduced scope to increase employment levels," Yael
Selfin, chief economist at KPMG UK, said.
SURPRISE FOR BOE
The first-quarter growth exceeded all forecasts in a Reuters poll of 39
economists which had pointed to a 0.4% expansion of gross domestic
product in the January-to-March period, after GDP shrank by 0.3% in the
final quarter of 2023.
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Iconic red double-decker bus rides at the Regent Street, in London,
Britain, April 28, 2024. REUTERS/Maja Smiejkowska/File Photo
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Friday's data also showed that GDP in March was 0.7% higher than a
year earlier, above expectations of a 0.3% rise.
The Bank of England, which held interest rates at a 16-year high on
Thursday, had forecast quarterly growth of 0.4% for the first
quarter and a smaller 0.2% rise for the second quarter, and a weak
expansion of just 0.5% for 2024 as a whole.
Officials on the BoE's Monetary Policy Committee signalled the
central bank could shift to cutting rates as early as June, but some
economists suggested on Friday that stronger GDP growth could delay
the Bank's efforts and stoke inflation.
"This is likely to be a surprise to the MPC and may result in upward
revisions to inflation at the next Monetary Policy Report,"
economists at Japanese bank Nomura said.
Sterling strengthened against the U.S. dollar after Friday's ONS
figures were released.
LIVING STANDARDS
On a monthly basis, the economy grew by 0.4% in March, much faster
than the 0.1% growth forecast by economists in the Reuters poll,
reflecting strength in retail, public transport, haulage and health
- partly due to fewer public-sector strikes.
Car manufacturing also performed well, offset by continued weakness
in construction, the ONS said.
GDP per head rose for the first time in two years in the first
quarter, up 0.4%, but was still 0.7% lower than a year earlier,
highlighting the ongoing squeeze on living standards and Britain's
struggle to boost productivity.
"In per capita terms, it could be said that UK households have seen
little meaningful improvement in living standards in the last two
years," Gora Suri, economist at PwC, said.
(Reporting by Suban Abdulla and David Milliken; Editing by Kate
Holton and Toby Chopra)
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