A citizen walks in heavy rain near the Bank of England in May 2023.
Dan Kitwood | Getty Images News | Getty Images
LONDON – The British economy grew 0.1% in the first quarter after an unexpected contraction in March, official figures showed on Friday.
Economists polled by Reuters had forecast the same growth figures for the first three months of the year but expected stagnation in March while a 0.3% decline was recorded.
Construction grew 0.7%, while manufacturing output rose 0.5% in the first quarter, with services and manufacturing posting growth of 0.1%. On a monthly basis, services fell 0.5% in March, mainly due to declines in wholesale, retail and auto repairs.
The national statistics agency said there was no increase in real household spending as incomes remained under pressure from higher prices.
“I think the UK is back and these are numbers that no one would have predicted three months ago,” UK Treasury Secretary Jeremy Hunt told CNBC at a G-7 summit in Niigata, Japan.
“But I think we are aware that there is still a long way to go. We still have inflation that is too high, growth is still not as high as we would like, and when I speak to my fellow finance ministers, we are all.” We are talking about the same thing: labor supply, productivity, as we are ours increase long-term growth rates so we can pay for the increasing number of things that taxpayers are asking governments to do,” Hunt continued.
Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note that the quarterly figures “suggest that low real incomes and high interest rates, together with unusually wet weather, are dampening activity”, also citing widespread strike action this year . She estimated that this was declining in government consumption and net trade made for “dark reading”.
““There’s still no recession, but with the full impact of higher interest rates still being felt, it’s too early to sound the all-clear,” Gregory added.
UK growth has been subdued so far this year, coming in at 0.4% in January and flat in February after the economy narrowly avoided a technical recession in 2022.
Inflation continues to hurt the UK more than other major economies, with the reading still above 10% in March.
The Bank of England hiked interest rates 25 basis points to 4.5% on Thursday, the 12th straight hike to counter persistently high prices. Even more optimistic was the central bank’s statement that it no longer expects the UK to fall into recession this year, despite previously forecasting the longest recession on record.
The Bank of England now forecasts UK GDP to be flat in the first half of this year, growing by 0.9% by mid-2024 and by 0.7% by mid-2025.
“It could be the biggest update we’ve ever made,” BoE Governor Andrew Bailey told CNBC on Thursday, defending the revision as the result of a changing picture from conditional data including financial markets, commodity prices and government policies.
“The level is still pretty low though, let’s be honest,” Bailey added.
The euro zone grew by just 0.1% in the first quarter of the year, while Germany – the Union’s largest economy – stagnated.