The UK economy overcame its technical recession in the first quarter, displaying better-than-anticipated economic growth and marking the strongest output since the end of 2021. This rebound was led by a surge in the services sector and household expenditure.
Preliminary estimates from the Office for National Statistics (ONS), published on Friday, showed that the Gross Domestic Product (GDP) expanded by 0.6 percent from the fourth quarter. This growth followed an economic contraction of 0.3 percent in the previous quarter and a 0.1 percent decrease in the third quarter of the last year. Economists were projecting the GDP growth for the first quarter to reach only 0.4 percent.
In terms of production, there was widespread growth in the service sector, resulting in a quarterly expansion of 0.7 percent. For the first time since the initial quarter of 2023, services output increased. Production also advanced 0.8 percent, following a 1.1 percent drop in the preceding quarter. In particular, manufacturing output surged by 1.4 percent, largely driven by a 5.7 percent increase in the manufacture of transport equipment.
During the same period, construction saw a contraction of 0.9 percent, marking a second consecutive quarterly decrease. This decrease is attributable to a 1.8 percent decline in new work.
An examination of the expenditure component revealed that increased household spending, government consumption, and volume of net trade were partially offset by decreases in gross capital formation.
After two consecutive quarters of decline, household consumption recovered by 0.2 percent. Owing to increased activity in health and transport sectors, government spending growth improved to 0.3 percent from 0.1 percent.
There was also a rise seen in gross fixed capital formation, which grew by 1.4 percent following 0.9 percent growth in the preceding period. Business investment within gross fixed capital formation also went up by 0.9 percent.
Further, inventories fell by GBP 706 million in the first quarter when excluding alignment and balancing adjustments. The trade deficit for goods and services stood at 0.6 percent of nominal GDP.
Year-on-year, GDP increased by 0.2 percent in the first quarter, surpassing expectations for a standstill in growth.
Monthly GDP indicators showed 0.4 percent growth in March, following a revised 0.2 percent gain in February, which was up from an initial estimate of 0.1 percent growth. GDP also increased by 0.3 percent in January. March's GDP growth was expected to be only 0.1 percent.
Capital Economics economist Ruth Gregory argued that these fresh data mean the Bank of England (BoE) may not need to hasten interest rate cuts. However, the timing of the first interest rate cut will depend on the upcoming inflation and labor market releases, Gregory added.
Last Thursday, the BoE left its key policy rate unchanged for the sixth consecutive meeting, indicating that the first rate cut since 2020 is expected soon. The Bank Rate is currently at 5.25 percent, the highest since early 2008.
ING economist James Smith suggested that the economy is moving into a brighter phase. Factors such as rising real wages, eased mortgage pressures, and increased economic immigration have contributed to the UK's economic growth, said Smith.
David Bharier, Head of Research at the British Chambers of Commerce, commented that the estimated 0.6 percent growth, which exceeded expectations, demonstrates that the UK is recovering from the slight recession last year. Bharier called on policymakers to present a clear plan for economic growth to boost businesses.
Additionally, an ONS report published on Friday stated that in March, the visible trade deficit narrowed to GBP 13.96 billion from GBP 14.13 billion the previous month. The services sector trade resulted in a surplus of GBP 12.87 billion compared to GBP 12.65 billion in February. The trade balance subsequently posted a shortfall of GBP 1.09 billion compared to a GBP 1.47 billion deficit in February.
