The UK emerged from recession at the beginning of the year thanks to stronger-than-expected growth. According to official statistics, the GDP expanded by 0.6% between January and March—the quickest pace in the previous two years.
UK Economy Shows Signs of Recovery, Interest Rates Reach 16-Year High
After contracting for two consecutive three-month periods, the UK entered a recession at the conclusion of the previous year.
While Labour said that now was not the time for a “victory lap”, Prime Minister Rishi Sunak claimed that the economy had “turned a corner”.
The Bank of England governor, Andrew Bailey, told the BBC on Thursday that while the UK was observing a recovery, it was not a significant one.
Interest rates have reached their highest point in sixteen years, which means that borrowing costs for loans and mortgages are higher, but saver returns have improved as well.
Recent weeks have seen a gradual increase in mortgage rates as expectations on the timing of the Bank of England's rate cutbacks were revised downward.
The Bank predicted on Thursday that inflation—a measure of how quickly prices are rising—will approach its target level in the coming months. This had increased anticipation for a June rate reduction. But such expectations have been dashed by the growth results, which were greater than anticipated.
According to Ruth Gregory, Capital Economics' deputy chief UK economist, this demonstrated that “the Bank of England doesn't need to rush to cut interest rates.”
She indicated that future employment and inflation data would ultimately decide the first rate cut.
UK Economy Rebounds, Led by Services Sector Growth and Consumer Spending
The Office for National Statistics (ONS) reported that the early part of the year saw growth driven by services, which includes industries like hospitality, the arts, and entertainment. An early Easter in March is probably what contributed to this growth. Easter fell in April of last year.
Analysing credit and debit card data revealed anecdotal evidence that customers have been spoiling themselves with home furniture and clothes.
The ONS reported that automakers also had a strong quarter, despite the construction industry continuing to be “weak”.
Even while the economy as a whole is expanding once more, many people may not be feeling any better off. Expansion per head remains at 0.7% lower than the previous year, even after accounting for the effects of inflation, or the rate at which prices rise, and population expansion.
Even though the economy shrank in the second half of the previous year, it was the least severe recession in recent data.
People's decreased spending during the recession was partially due to rising retail prices and rising mortgage rates.
According to KPMG UK Chief Economist Yael Selfin, “the worst is behind the UK economy”.
“We expect to see continued growth for the rest of this year,” she added, with falling inflation and rising wages helping “to repair some of the damage to household incomes and support households' consumption”.
GDP Growth Signals Economic Health, Says Chancellor Jeremy Hunt
Gross domestic product (GDP) measures the size of an economy by taking into account all economic activity in a country, including that of businesses, governments, and individuals.
Most economists, governments, and businesses want GDP to expand gradually since it typically implies people spend more, more jobs are created, more taxes are paid, and workers receive higher pay raises.
The discussion over the strength of the economic recovery is expected to be a key battleground in the general election campaign.
Chancellor Jeremy Hunt stated that, despite a challenging few years, “today's growth figures are proof that the economy is returning to full health for the first time since the pandemic”.
He told the BBC's Today programme: “For families who have been having a really tough time, I think they can see that the very difficult decisions that we've taken in order to get the economy back on its feet after the pandemic, after the energy shock, are beginning to pay off and we need to see them through.”