Updated data released by the Office of National Statistics (ONS) on Friday show a stronger economic recovery in the first fiscal quarter than originally thought.
Between January and March, the UK’s economy grew by 0.7 percent, according to the ONS.
In May, the non-ministerial government department estimated the growth to be 0.6 percent.
The updated figures were driven by improved growth in the services sector, with professional services, transport, and storage sectors all delivering marginally higher performances.
“In output terms, services grew by 0.8% on the quarter with widespread growth across the sector; elsewhere the production sector grew by 0.6% while the construction sector fell by 0.6%,” the ONS said.
Last quarter’s gross domestic product (GDP) was the strongest recorded in the UK since the end of 2021—at a time when economies began opening up after pandemic related-lockdowns, and just before the Russian invasion of Ukraine, which saw fuel and energy costs soar in the UK and Europe.
The revised data are a positive market indicator for the UK following a technical economic recession in 2023 after GDP delivered negative growth in the last two quarters of the year.
Mark Preskett, senior portfolio manager at Morningstar Wealth, said to PA media that “the upward revision to the UK’s Q1 GDP is encouraging and further evidence that the UK economy is recovering.
“The services upgrade—to 0.8% from 0.7%—backs what we have been seeing in inflation data.”
Earlier this month the ONS revealed that the economy flatlined in April amid heavy rainfall and unfavourable weather which affected production and growth output.
Despite the weather, economists still predict positive growth for the current quarter.
Thomas Pugh, economist at RSM UK, said, “All the data suggests that the economy is set to continue to rise.
“We then expect growth to accelerate in the second half of this year and into 2025 as sharply lower inflation, tax cuts, and falling interest rates give households an income boost.”
This comes as inflation in the UK also reaches its lowest level in three years, primarily driven by falling gas and electricity prices.
One of the main priorities of the Conservative government has been to bring inflation back to the two percent—a target which has been achieved just days out from the general election on July 4.
Reacting to the ONS report on inflation, Mr. Sunak said it was a “major moment for the economy.”
“This is proof that the plan is working and that the difficult decisions we have taken are paying off. Brighter days are ahead, but only if we stick to the plan to improve economic security and opportunity for everyone,” the prime minister said in a statement.
However, according to Labour, the government should be holding off on “popping champagne corks.”
Shadow chancellor Rachel Reeves has stressed that prices are still soaring, mortgage bills are high and taxes are at a seventy-year high.
“Only Labour can be trusted to protect and improve family finances,” Ms. Reeves said.
However, despite inflation reaching the bank’s two percent target in May, the Bank of England (BoE) voted again last week to maintain interest rates at 5.25 percent.
Members of the nine-person Monetary Policy Committee (MPC) voted on Thursday by a majority of 7–2 to keep the interest rate unchanged. The bank has kept the 16-year high value of 5.25 percent since August 2023.
The split of votes was the same as the last time, when the MPC met on May 9. Two members of the committee—Swati Dhingra and Dave Ramsden—voted for a reduction again, by 0.25 percentage points to 5 percent.
They argued that inflation—which reached the two percent mark in May—is set to stay at normal levels.
The BoE said it will keep the monetary policy restrictive for as long as it takes for inflation to “sustainably” remain at the two percent target.
“For some members within this group, the return of headline inflation to two percent, while welcome, was not necessarily indicative of the required sustained return to target,” the MPC summary read.
MPC policymakers said that the labour market showed signs of loosening but remained high by historical standards. Economists expect the wage growth to gradually slow down as the labour market cools in the upcoming months.
Evgenia Filimianova and PA Media contributed to this report.
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