Rishi Sunak, the UK prime minister, has declared that “confidence is returning” to the British economy after new data showed it rebounded by more than expected in January.
Gross domestic product rose 0.3 per cent in January, following a 0.5 per cent contraction the previous month, the Office for National Statistics said on Friday.
The improvement was driven by growth in the services sector, according to the official statistics published ahead of the Budget next week.
The expansion was higher than the 0.1 per cent forecast by economists polled by Reuters. The services sector rose 0.5 per cent, propelled by education, transport and storage, and human health activities.
Sunak, speaking to journalists ahead of a UK-France summit in Paris, was upbeat on the prospects for the economy ahead of the Budget.
“I think the underlying fundamentals of the economy are strong,” he said, citing recent data from purchasing managers and the construction sector.
“They’re all showing encouraging signs that things are better than people feared, that sentiment is improving, confidence is returning and that is partly because of the plan we have put in place.”
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Jeremy Hunt, chancellor, will present a Budget next week that will focus on stability and maintaining downward pressure on inflation. There will be only limited room for big tax giveaways.
Friday’s GDP figures add to signs of economic resilience seen in recent data and raise expectations that the UK will avoid a deep recession.
“Our hunch is that there will still be a recession, but that recession may be smaller, shallower and commence later than we had initially envisaged,” said Ruth Gregory, economist at Capital Economics.
The higher than expected growth will reinforce expectations of a 25 basis point rate increase at the Bank of England’s next Monetary Policy Committee meeting on March 23.
Commenting on the data, the chancellor said the UK economy had “proved more resilient than many expected”. He added that next week he would “set out the next stage of our plan to halve inflation, reduce debt and grow the economy”.
The Budget “could have a significant impact” on the UK’s near-term outlook said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales. “While extending energy support will provide some relief to struggling households, aggressive tax rises would risk eliminating any lingering momentum from the economy,” he added.
Despite the uptick in growth in January, output was still 0.2 per cent below its level in February 2020 and unchanged from January 2022, reflecting the negative impact of high inflation and rising interest rates on household finances.
The UK is the only G7 economy that has not yet recovered to pre-pandemic levels. In the final three months of 2022, the US economy was 5.1 per cent larger than in the fourth quarter of 2019, before the first Covid-19 restrictions were put in place; the eurozone’s was 2.4 per cent bigger in the same period.
Darren Morgan, ONS director of economic statistics, said that the main drivers of January’s growth “were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup and private health providers also had a strong month”.
He added that the partial recovery of postal services after strikes in December also helped boost output.
However, construction fell 1.7 per cent in January, which the ONS attributed to heavy rain and economic uncertainty leading to cancellations and lower demand, particularly in the housing sector.
Manufacturing production also dropped by 0.4 per cent in January and was down 5.2 per cent compared with the same month last year. This showed “some underlying weakness as a result of high inflation and high interest rates”, said Gregory.
Source: Economy - ft.com
