A return to economic growth is a boost for Rishi Sunak as he prepares to call a general election later this year Photo: Carl Court/AFP
The UK economy is «picking up», officials said, after last year's recession ended with unexpectedly strong growth in the early months of 2024.
GDP in the first quarter jumped 0.6% in the first quarter, data shows . Office for National Statistics, fastest growth in more than two years.
This means the technical recession is now over and raises hopes of a sustained period of growth.
Jeremy Hunt called the economic growth figures » proof that the economy is returning to full health for the first time since the pandemic.»
The Chancellor said: “We are growing this year and have the best prospects of any G7 European countries over the next six years, with wages rising faster than inflation, energy prices falling and a £900 tax cut for the average employee getting into bank accounts.
Grant Fitzner, chief economist at the ONS, said: “To paraphrase former Australian Prime Minister Paul Keating, the economy is booming.”
He said the first-quarter results represented a return to something approaching traditional trend growth rates. If the economy maintains its current rate of growth, it will grow at 2.5% per year, a rate rarely seen since the financial crisis.
“We are seeing economic growth starting to recover to higher levels. normal level after several turbulent years,” Mr. Fitzner said.
There are signs the economy could grow at a similar pace in the second quarter, with ONS and private sector research showing strong growth in UK businesses.
The surge in growth in the first quarter also spread across the economy, raising hopes that that it can survive.
Almost every part of the service industry that dominates the economy has expanded. Trade also contributed to growth.
Retail sales rose as consumer services rose 0.6%, recovering from a decline in late 2023, while manufacturing also picked up steam after slumping during the recession. However, construction continues to struggle due to high borrowing costs.
Encouraging for future activity, business investment also rose 0.9%.
National Institute forecasts economic and social research, GDP in the current quarter will grow by another 0.6%.
The return to economic growth is a boost for the Government as the Prime Minister prepares to call a general election later this year.
Rishi Sunak welcomed the prospect of improved household well-being, saying during a visit to Oxfordshire on Friday: “Afterwards there will certainly be After several difficult years that the country has gone through, the situation is actually now starting to improve.”
“There is confidence returning to the economy and the country, and I hope you are starting to feel it too.”
The economy is now 1.7% larger than it was before the pandemic — a poor growth performance in four years, especially compared to the US, which grew 8.7% over the same period.
However, Holger Schmieding, economist at Berenberg Bank, said Britain was “finally catching up a bit.”
He said: “The UK economy has lagged behind the US and eurozone economies since the start of the pandemic. The downturn in 2020 was deeper, and the subsequent recovery leveled off in 2022, even more so than in the eurozone, due to sharp increases in energy and food prices.
Now Britain «may have started to earn back some of the lost ground,» he said. «We expect UK growth to slightly outpace eurozone growth, particularly in the coming years.»
However, unexpected strength in the economy could delay the Bank of England's interest rate cuts.
Officials led by Andrew Bailey said on Thursday they were leaning toward lowering borrowing costs from the current level of 5.25 percent now that inflation appears to be easing. back under control.
But stronger-than-expected economic growth could prompt caution amid concerns it will threaten inflationary forces.
George Moran, an economist at investment bank Nomura, said first-quarter growth was significantly higher than the Bank of England's expectations of 0.4%.
He said: “This suggests inflation pressures may be higher and the economy may be more tolerant of rate hikes.
“The bank will have to maintain contractionary policies longer than markets set prices to cope with inflation . We expect the first rate cut only in August.”
Hugh Pill, chief economist at the Bank of England, warned against the risk of being “lured” by data showing a slowdown in inflation.
He said the Monetary Policy Committee, which sets rates, must ensure that «we ensure that inflation is on target on a long-term and sustainable basis.»
Andrew Goodwin of Oxford Economics said: “Whether the first cut comes in June or August, it's finely balanced.”
“April wages and inflation data will be key. Wage data will show the impact of raising the country's cost of living by almost 10%, while inflation data will show the impact on core inflation of annual increases in indexed contracts and regulated prices (such as train tickets and telephone contracts). ].”
The timing of interest rate changes is politically sensitive given its impact on mortgage costs. Every month, around 100,000 homeowners run out of their cheap mortgage deals, forcing them to refinance at higher prices.
Mr Sunak told the BBC it would «take time» for people to «really feel better» . and that “there is still work to do.”
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