The UK economy grew in the first quarter and showed greater resilience than forecast a few months ago, but March’s performance was worse than expected.
UK GDP grew by 0.1 percent between the last quarter of 2022 and the first three months of this year, according to data released by the Office for National Statistics on Friday.
The expansion was in line with analysts’ expectations, following a 0.1 percent growth in the previous quarter.
The Bank of England said on Thursday it expects the economy to stagnate in both the first and second quarters and growth to accelerate in the rest of the year. In February, the BoE forecast a recession that would last throughout 2023 and into the first quarter of next year. However, due to lower energy prices, stronger global growth and more robust consumer and business confidence, the decline is not expected to be as long.
Ruth Gregory, economist at Capital Economics, said there is “still no recession, but with the impact of higher interest rates not yet felt, it’s too early to give the all-clear”.
The ONS noted that growth for the full quarter was driven by IT and construction. This was partially offset by declines in healthcare, which fell 0.5 percent, and education and public administration, each down 0.7 percent, as those sectors were hit by widespread strikes.
Government consumption and net trade also held back growth as exports fell 8.1 percent, a sharper drop than imports’ 7.2 percent. Business investment rebounded 0.7 percent as the end of March deadline for generous fiscal stimulus neared, but remained 1.4 percent below its pre-pandemic level
ONS data showed that the quarterly GDP rate, boosted by growth in January, was revised to 0.5 percent, while manufacturing fell 0.3 percent between February and March as the services sector faltered.
The reading disappointed economists polled by Reuters, who were forecasting flat GDP in March.
Darren Morgan, director of economic statistics at the ONS, said the fall in March was due to “widespread declines across the service sector”.
He explained that despite the introduction of new number plates, auto sales are low by historical standards – continuing the trend seen since the pandemic began – with warehousing, distribution and retail also having a bad month.
The numbers suggest that low real incomes and high interest rates, along with unusually wet weather, slowed activity, according to some economists.
These declines were partially offset by a strong month in manufacturing and growth in gas production and distribution and construction.
In March, the UK economy was 0.1 per cent monthly above its level before the February 2020 pandemic.
However, in an internationally comparable quarterly comparison, GDP was still 0.5 percent below the fourth quarter of 2019, i.e. before the first Covid-19 restrictions. This is a significantly worse performance than in the US, whose economy grew 5.3 percent over the period, and the euro zone, which grew by 2.5 percent.
The UK is “still at the bottom of the G7 rankings,” said Samuel Tombs, economist at Pantheon Macroeconomics. He explained that this was mainly due to weakness in real household spending, but “at least the magnitude of the underperformance is not increasing relative to other countries in Europe”.
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