UK economy grows 0.1% in first quarter but inflation continues to weigh

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A member of the public walks in the pouring rain near the Bank of England in May 2023.

Dan Kitwood | Getty Images News | Getty Images

LONDON Britain’s economy grew 0.1% in the first quarter, after an unexpected contraction in March, official figures showed on Friday.

Economists polled by Reuters had expected the same growth figure for the first three months of the year, but expected stagnation in March, down from the 0.3% drop recorded.

The construction sector rose 0.7%, while manufacturing performance rose 0.5% in the first quarter, with growth of 0.1% recorded in services and production. On a monthly basis, services fell 0.5% in March, mainly due to declines in wholesale and retail trade and automobile repair.

The national statistics agency said there was no growth in real household spending as incomes remained under pressure from rising prices.

“I think the UK is back, and these are numbers that nobody would have predicted even three months ago,” UK Finance Minister Jeremy Hunt told CNBC at a summit. G-7 in Niigata, Japan.

“But I think we are aware that there is still a long way to go. We still have inflation that is too high, growth is still not as high as we would like, and when I speak to my fellow Ministers of finance we talk about the same thing Labor supply, productivity, how we are going to increase our long term growth rates so that we can pay for the increasing number of things that taxpayers want governments do,” Hunt continued.

Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note that the quarterly figure “suggests that low real income and high interest rates, together with unusually wet weather, are holding back activity. “, also citing widespread strikes this year. declines in government consumption and net trade made the reading ‘gloomy’.

“There is still no recession, but with the full effect of rising interest rates yet to be felt, it is too early to give the green light,” Gregory added.

Persistent inflation

UK growth has been subdued so far this year, hitting 0.4% in January and stagnating in February, after the economy narrowly avoided a technical recession in 2022.

Inflation remains a more serious scourge for the UK than for other major economies, with the March figure still over double digits.

The Bank of England raised interest rates by 25 basis points to 4.5% on Thursday, making its twelfth straight hike in a bid to tackle stubbornly high prices. More optimistic, the central bank said it no longer expects the UK to enter recession this year, despite previously forecasting its longest recession.

The Bank of England now expects UK GDP to be flat in the first half of this year, growing 0.9% by the middle of 2024 and 0.7% by the end of 2024. mid 2025.

“This may be the biggest upgrade we’ve ever done,” BoE Governor Andrew Bailey told CNBC on Thursday, defending the review following a changing picture in the data. conditions, including financial markets, commodity prices and government policy.

“The level is still quite low, let’s be honest,” added Bailey.

The eurozone recorded just 0.1% growth in the first quarter of the year, with Germany, the bloc’s largest economy, stagnating.

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