UK Economy Bounces Back with 0.6% GDP Growth after Recession

The United Kingdom has emerged from a brief and mild recession, as preliminary data from the Office for National Statistics (ONS) revealed a 0.6% increase in gross domestic product (GDP) during the first quarter of 2024. This positive result comes following two successive drops in Q4 2023 and Q3 2023, each registering decreases of 0.3% and 0.1% respectively. The ONS stated that the growth was primarily driven by “widespread growth” in the service sector, which saw a rise of 0.7% during the period. These findings offer Prime Minister Rishi Sunak, who is preparing for an anticipated general election, welcome respite. However, the Conservatives recently experienced significant losses in local elections, portending unfavourable outcomes for them in the upcoming polls. Furthermore, one of Sunak’s MPs recently switched allegiances to the opposition Labour party. The Bank of England (BoE) currently predicts a 0.5% increase in UK GDP for 2024, which is double the pace predicted in February. In contrast, last year’s growth was meagre, amounting to only 0.1%. Additional indicators suggest that the economy’s future prospects appear promising. In April, output in both manufacturing and services expanded at the most robust rate in nearly a year, as per a study compiled by S&P Global. The services realm spearheaded the advancement. A thriving economy could potentially postpone the anticipated interest rate reductions that many experts foresee this year. “Stronger GDP growth increases the likelihood of stronger demand pressure on inflation,” analysts at Nomura remarked in a statement, adding that the release of Friday’s GDP results casts doubt on a June interest rate reduction. They predict that the BoE might commence trimming borrowing costs in August instead. Annual UK inflation eased to 3.2% last month, representing a considerable decrease from levels surpassing 10% approximately a year ago. The BoE aims for a rate of 2%, and Governor Andrew Bailey anticipates approaching this level in the near future. “Inflation has decreased considerably… But we require additional evidence that inflation will remain low before we can reduce interest rates,” Bailey explained on Thursday, during the central bank’s decision to retain official borrowing costs at 5.25%. Nonetheless, Bailey declined to dismiss the prospect of a June interest rate cut, yet underscored that it was not guaranteed and would depend on forthcoming statistics regarding inflation and employment. This story is still developing and will be updated.