UK recession ends with highest growth since end of blockade

The UK economy has recovered strongly from the shallow recession experienced at the end of last year. This provides some relief to Prime Minister Rishi Sunak, who has so far struggled to deliver on his promise to revive growth.

The Office for National Statistics said on Friday that gross domestic product rose 0.6% in the first quarter compared to the previous three months as customers returned to stores and investment rose again.. It’s the best reading since late 2021, when the UK eased coronavirus lockdown restrictions, and is higher than economists’ expectations for a 0.4% expansion.

In addition to gains in retail sales and investment, production improved as the number of strikes in the health sector decreased. In March alone, growth was 0.4%, well above expectations due to the jump in both services and manufacturing. In the end, the slowdown was the lowest for Britain in nearly 70 years, representing a 0.4% decline in the second half of last year.

“The worst for the UK economy is now behind us,” said Yael Selvin, chief economist at Kpmg UK. “Forward-looking indicators point to further momentum in the coming months.” While stronger-than-expected growth may complicate the Bank of England’s path towards a possible rate cut this summerThe central bank expects the expansion to be moderate in the second quarter.

Financial markets continued to offer a roughly 50% chance of a quarter-percentage point cut next month, with at least one more cut by the end of the year. Things have been largely that way since Bank of England Governor Andrew Bailey signaled on Thursday that he was open to monetary easing in June.

The British pound rose 0.1 percent to about $1.2540, making it one of the best-performing major currencies against the dollar on Friday. However, UK bonds ignored the positive news and instead rose alongside their Eurozone counterparts. This lowered the benchmark 10-year yield by 2 basis points to a one-month low of 4.12%.

The latest data changes the rhetorical battle lines between Sunak’s Conservatives and… The Labor Party, led by Keir Starmer, promises better days for the economy before elections expected to be held in the second half of the year.

The return to growth gives the Prime Minister some evidence to back up his repeated claim that “the plan is working” as he seeks to lift his party’s poll numbers from record lows and calm Conservatives concerned about the hit they took in local elections. . last week.

Treasurer Jeremy Hunt said these figures were “evidence that the economy is returning to full health,” adding to Sky News that “the difficult decisions we have made over recent years are finally starting to pay off, and they have.” Move forward. With them.”

Labour, which has pointed to the recession as the end product of 14 years of Conservative government, They have already tried this week to reframe the debate to focus on individual voter dissatisfaction, a sentiment echoed by Hunt’s Labor counterpart Rachel Reeves after the data was published on Friday.

Reeves said: “This is not the time for Conservative ministers to celebrate victory and tell the British people that they have never been so good.” “The economy is still £300 lower per person than it was when Rishi Sunak became Prime Minister.”

The data also marks the end of a seven-quarter decline in output per person, a historically long “per capita recession” masked by record levels of immigration, as Sunak and Hunt sought to recruit foreign workers to ease a tight labor market. GDP per capita grew by 0.4% in the first three months of the year, although it is still 0.7% lower than in the same period last year.

“All the signs since the beginning of this year definitely point to things finally starting to get better,” Liz Martins, chief economist at HSBC, told Bloomberg Radio. “The concern would be that if these interest rate cuts are not achieved, the foundation of this recovery will weaken and some momentum may be lost.”

Sunak is counting on a new economic trend to avoid a historic defeat in the next election, and many Conservative ministers in marginal constituencies, including Hunt, are expected to lose their seats. The Prime Minister hopes the “feel-good factor” will take hold among voters as inflation falls, mortgage rates fall and real wages rise.

A 0.7% increase in services production boosted the economy’s recovery in the first three months of the year. It ended three consecutive quarters of decline for the UK’s largest sector, with households’ purchasing power repaired as the cost of living crisis faded. However, there was mixed news outside the services sector: industrial production grew by 0.8% while construction output fell by 0.9%.

The Office for National Statistics said imports to the UK were not affected by unrest in the Middle East and the Red Sea. The UK’s trade deficit, excluding precious metals, narrowed in the first quarter to £7.8 billion ($9.749 billion) and has been declining steadily since the start of 2022.

“This is the beginning of a brighter period for the UK economy than in the past four years,” said Thomas Pugh, economist at RSM UK. “Rising real incomes, tax cuts and lower interest rates will give household disposable income a significant boost in the second half of this year, and a recovery in consumer confidence will ensure that the bulk of this increase in income is spent.