Financial News: Better Than Expected Q1 Growth Leads UK Out

Better Than Expected Q1 Growth Leads UK Out Of Recession

(RTTNews) - The UK economy ended a technical recession in the first quarter with the economic output growing better than expected and also marked the strongest since late 2021 led by a rebound in the services output and household spending.

Gross domestic product grew 0.6 percent from the fourth quarter, when the economy shrunk 0.3 percent, preliminary estimates from the Office for National Statistics showed Friday. Output had declined 0.1 percent in the third quarter last year.

The 0.6 percent growth was the fastest since the fourth quarter of 2021. Economists had expected the first quarter growth to come in at 0.4 percent.

On the production side, services posted a quarterly expansion of 0.7 percent with widespread growth across the sector. Services output grew for the first time since the first quarter of 2023.

Production advanced 0.8 percent after a 1.1 percent fall a quarter ago. Within production, manufacturing output climbed 1.4 percent, underpinned by the 5.7 percent surge in the manufacture of transport equipment.

Meanwhile, construction contracted 0.9 percent each in the first quarter and in the fourth quarter of 2023. The decline reflects a 1.8 percent drop in new work.

The expenditure-side breakdown showed that increases in the volume of net trade, household spending and government consumption were partially offset by falls in gross capital formation.

Household consumption rebounded 0.2 percent after two consecutive declines. Driven by higher activity in health and transport, government spending growth improved to 0.3 percent from 0.1 percent.

Gross fixed capital formation grew 1.4 percent, following a 0.9 percent growth in the preceding period. Within gross fixed capital formation, business investment moved up 0.9 percent.

Further, excluding the alignment and balancing adjustments, inventories fell by GBP 706 million in the first quarter. The trade deficit for goods and services was 0.6 percent of nominal GDP.

In the first quarter, GDP rose 0.2 percent year-on-year, beating expectations for stagnation.

The monthly GDP indicator grew 0.4 percent sequentially in March after a revised 0.2 percent gain in February, which was revised up from 0.1 percent. In January, GDP rose 0.3 percent.

Economists had forecast a 0.1 percent increase for March.

Today's release may mean the Bank of England does not need to rush to cut interest rates, Capital Economics economist Ruth Gregory said. "But the timing of the first interest rate cut will ultimately be determined by the next two inflation and labor market releases," the economist noted.

On Thursday, the Bank of England had left its key policy rate unchanged for the sixth consecutive meeting and signaled that the first rate cut since 2020 is on the horizon.

The Monetary Policy Committee decided to hold the Bank Rate at 5.25 percent, which is the highest since early 2008.

ING economist James Smith said the bottom line is that the economy is entering a brighter period.

Rising real wages, an easing of the recent mortgage squeeze as well as high economic migration have helped lift the UK economy back into growth, Smith added.

British Chambers of Commerce Head of Research David Bharier said today's growth estimate of 0.6 percent, outstripping expectations, is a welcome sign that the UK has moved away from last year's shallow recession.

"With signals from the Bank that their next move will be an interest rate cut, it is now essential that policymakers show businesses a clear plan for growth to unlock their economic potential," said Bharier.

Another report from the ONS today showed that the visible trade deficit narrowed to GBP 13.96 billion in March from GBP 14.13 billion in the previous month.

The trade in services resulted in a surplus of GBP 12.87 billion compared to GBP 12.65 billion in February. As a result, the trade balance posted a shortfall of GBP 1.09 billion compared to GBP 1.47 billion deficit in February.

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