- UK GDP grows 0.3% in January, better than 0.1% forecast
- One-off increase in education sector boosts output
- Reflects children returning to school after falling ill in December.
- Production and construction down
- The readings are unlikely to have much impact on the Bank of England rate debate
LONDON, March 10 (Reuters) – Children returning to school after an illness-plagued December provided an unexpected, one-off boost to the UK economy in January as output growth beat forecasts, data showed on Friday.
The Office for National Statistics (ONS) said the UK economy grew 0.3%m/m after a 0.5% contraction in December – a reading that should further allay recession fears, at least in the short term.
A Reuters poll of economists pointed to growth of 0.1%.
The pound rose against the dollar and euro on figures showing growth was being driven solely by services – much of it due to a one-off upswing in the education sector.
The entertainment sector – helped by the return of the Premier League in men’s football following the 2022 World Cup – has been a further boost to the economy.
Manufacturing and construction contracted in a sign of deeper troubles for the economy.
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“If you look beneath the surface, the numbers suggest the economy is on weaker ground than it appears,” Ruth Gregory, deputy UK chief economist at consultancy Capital Economics.
Martin Beck, chief economic adviser to the EY ITEM Club’s forecasting group, said widespread strikes in December and January likely explained why the economy remained below its levels in November.
According to the ONS, economic output in January was 0.2% below pre-pandemic levels in February 2020 – in contrast to other advanced economies – and had shown no growth over the past three months and the past year.
Friday’s data is unlikely to change the debate significantly at the Bank of England as it weighs whether to raise interest rates again at its March meeting.
The probability of a 25 percentage point hike in interest rates on March 23 edged down to around 83% on Friday, according to financial market prices, from 100% earlier this week.
The UK economy has proved “more resilient than many expected, but there is still a long way to go,” said Treasury Secretary Jeremy Hunt, who will present his annual budget next week.
Hunt is expected to keep public finances under control in Wednesday’s budget and will refrain from big tax cuts or spending increases until the next election approaches.
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The ONS said education accounted for half of the 0.3% growth rate as children returned to school after a sharp drop in school attendance in December.
The government previously reported high rates of flu and scarlet fever in December. Fear of contracting COVID-19 over Christmas may also have contributed to children being pulled out of school early.
Education accounts for 6% of the UK economy and student numbers are the main way the ONS measures the amount of production the sector generates.
reporting by Andy Bruce; Adaptation by William James, John Stonestreet and Christina Fincher
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