- The UK economy grew by 0.1% in the first quarter, but showed an unexpected 0.3% contraction in March.
- Construction and manufacturing showed steady growth, but services were hit by declines in wholesale and retail trade, while household incomes remained squeezed and strike action hampered growth.
- The Bank of England on Thursday said it no longer expects the UK to enter a recession this year.
A member of the public walks in heavy rain near the Bank of England in May 2023.
Dan Kitwood | Getty Images News | Getty Images
LONDON — The UK economy grew by 0.1% in the first quarter, following an unexpected contraction in March, official figures showed on Friday.
Economists polled by Reuters had forecast the same growth figure for the first three months of the year, but expected stagnation in March, compared to the 0.3% fall recorded.
The construction sector expanded by 0.7%, while manufacturing performance increased by 0.5% in the first quarter, with 0.1% growth logged in services and production. On a monthly basis, services fell 0.5% in March, mainly due to declines in wholesale and retail trade and motor repair.
The national statistics agency said there was no growth in real household spending, as incomes remained under pressure from higher prices.
Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note that the quarterly figure “suggests that low real incomes and high interest rates, as well as unusually wet weather, are slowing in activity,” also citing widespread strike action this year. . He anticipates rejection with government consumption and net trade made for “bleak reading.”
“Still no recession, but with the full drag from higher interest rates being felt it’s too early to be clear,” Gregory added.
UK growth has been muted 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 remains a more severe blight in the UK than in other major economies, with March’s reading still above 10%.
The Bank of England on Thursday raised interest rates by 25 basis points to 4.5% making it the twelfth consecutive increase in an attempt to combat stubbornly high prices. More optimistically, the central bank said it no longer expects the UK to enter a recession this year, despite its previous forecast of its longest recession.
The Bank of England now forecasts that UK GDP will be flat in the first half of this year, growing by 0.9% in mid-2024 and 0.7% in mid-2025.
“This may be the biggest upgrade we’ve ever done,” 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 a little low though, let’s be honest,” added Bailey.
The euro zone recorded just 0.1% growth in the first quarter of the year, with Germany – the bloc’s largest economy – stagnating.