Positive GDP data eases recessionary worries but outlook remains murky

The UK economy eked out modest growth during the first quarter of the year, official data has revealed, further easing recessionary concerns.

Gross domestic product (GDP) increased by 0.1 per cent between January and March 2023, the Office for National Statistics (ONS) revealed. But it came after a 0.3 per cent decrease in March, driven by falls for the retail and wholesale sector while the healthcare sector was also impacted by strike action. Economists had predicted a flat reading for March and the 0.1 per cent increase for the quarter.

The decline in March came after a flat performance in February and 0.5 per cent rise in January, according to the ONS data. Director of economic statistics Darren Morgan said: “Despite the UK economy contracting in March, GDP grew a little over the first quarter as a whole. The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historical standards - continuing the trend seen since the start of the pandemic - with warehousing, distribution and retail also having a poor month.”

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The figures came a day after the Bank of England said it no longer predicts the UK will enter a recession this year after upgrading its economic growth projections. A technical recession is when the economy contracts for two consecutive quarters.

In February, the central bank’s nine-strong monetary policy committee believed the economy could fall into a shallow recession starting from the first three months of the year. On Thursday, it said it expects GDP to rise by 0.25 per cent this year before a 0.75 per cent increase next year and the year after. It came as the bank increased interest rates from 4.25 per cent to 4.5 per cent in an effort to control inflation, currently running at over 10 per cent annually.

Garry White, chief investment commentator at Charles Stanley, said: “[The ONS] figures showed the UK economy grew 0.1 per cent between January and March, in line with expectations. However, the stickiness of inflation, especially in food, is starting to prove problematic. It remains stubbornly high - and the central bank has indicated now it may have to raise interest rates even further to bring price rises under control. This difficult balancing act between bringing inflation down while not causing an economic slowdown to spill over into a contraction is a difficult challenge for the BoE. This means that the risk of a recession remains.”

ING Developed Markets economist James Smith noted: “Strip out all of the volatility and the economy seems to be reasonably stagnant. There is some potential for some very modest growth through the rest of the year, given that the real wage squeeze is set to lessen (at least through the lens of annual wage growth adjusted for headline inflation), and consumer confidence has correspondingly come off its lows. The resilience in the jobs market also suggests the risk of a very near-term recession has faded,” he added.



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