The UK economy expanded in the first quarter, showing greater resilience than forecast a few months ago.
UK GDP rose by 0.1 per cent between the final quarter of 2022 and the first three months of this year, according to data published by the Office for National Statistics on Friday.
The expansion followed a 0.1 per cent growth rate in the previous quarter and came despite previous predictions of recession.
The Bank of England said on Thursday it expected the economy to stagnate in both the first and second quarters with growth accelerating in the rest of the year. By contrast, in February the BoE had forecast a recession lasting throughout 2023 and into the first quarter of next year.
The central bank no longer expects such a long contraction thanks to lower energy prices, stronger global growth and more robust consumer and corporate confidence.
Ruth Gregory, economist at Capital Economics, said there was “still no recession, but with the full drag from higher interest rates yet to be felt it is too soon to sound the all-clear”.
The Bank of England raised interest rates a quarter of a percentage point to 4.5 per cent on Thursday — a 15-year high.
The ONS noted that first-quarter growth was driven by IT and construction. This was partially offset by falls in health, which registered a 0.5 per cent reduction, and education and public administration, both down 0.7 per cent partly due to the impact of strike action.
Government consumption and net trade were also a drag on growth as exports fell 8.1 per cent, a larger contraction than the 7.2 per cent slide for imports.
Business investment rebounded by 0.7 per cent, as companies took advantage of tax incentives to invest that expired at the end of March, but remained 1.4 per cent below its pre-pandemic level.
The quarterly GDP rate was boosted by growth in January, which was revised up to 0.5 per cent. But output fell by 0.3 per cent between February and March, as the services sector stuttered.
By contrast, economists polled by Reuters had forecast GDP to be flat in March.
Noting the “widespread decreases across the services sector” in March, Darren Morgan, director of economic statistics at the ONS, said cars sales in the month were low by historic standards, with warehousing, distribution and retail also performing poorly.
In March, the UK economy was 0.1 per cent above its pre-pandemic level of February 2020 on the monthly reading.
However, on the internationally comparable quarterly figure, GDP was still 0.5 per cent below the level of the final quarter of 2019, before the pandemic hit.
This is a much poorer performance than those logged by the US, whose economy rose by 5.3 per cent over the period and the eurozone, up by 2.5 per cent.
The UK is “still at the bottom of the G7 league table”, said Samuel Tombs, economist at Pantheon Macroeconomics. He said this chiefly reflected weakness in households’ real spending, but added that “at least the magnitude of the underperformance is not increasing relative to other countries in Europe”.
Source: Economy - ft.com
