UK economy exits recession as interest rates held

The UK economy grew by 0.6% between January and March, according to figures from the Office for National Statistics (ONS).

It means that the country has officially emerged from recession with growth led by the services sector.

Production also grew while the construction sector shrank.

It follows the Bank of England’s decision to hold interest rates at 5.25% for the sixth month in a row.

The Bank signalled that rate cuts should follow later this year.

Ben Jones, Lead Economist at the Confederation of British Industry, said: ‘Back-to-back increases in output over the first months of this year suggest the UK is now on the road to recovery. With falling inflation boosting households’ spending power, as well as opening the way for a reduction in interest rates in the months ahead, the economy should be able to sustain some momentum through the year.

‘But a consumer-led recovery could prove short-lived without more determined action to tackle the long-standing problem of weak productivity growth, which ultimately sets the UK’s economic speed limit. 

‘Firms want to see action that could help support investment and cut costs which, includes extending full expensing to leased and rented assets, and a business tax roadmap to give firms the certainty and confidence they need to plan ahead and invest in a vibrant UK economy.’

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UK borrowing £7.6 billion lower than last year, data shows

Figures have shown that UK borrowing over the last financial year was £7.6 billion lower when compared to the year before.

The Office for National Statistics (ONS) data also showed that borrowing was £120.7 billion in the year to March – £6.6 billion more than the Office for Budget Responsibility (OBR) previously predicted.

The figures revealed that the UK has a moderate current deficit of 3.0%. Debt levels are at their highest, however, at 89.4%.

Cara Pacitti, Senior Economist at the Resolution Foundation, commented: ‘Last year was one of high but falling inflation and rising interest rates, causing both spending and tax receipts to rise in nominal terms compared to the year before.

‘While lower than last year, borrowing is already £6.6 billion higher than forecast at the Spring Budget last month. So far there are no signs of any new fiscal wriggle room emerging that might allow the Chancellor to announce another pre-election Budget in the Autumn.’ 

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UK economy returns to growth

The UK’s economy returned to growth in January, according to the latest data from the Office for National Statistics (ONS).

The economy grew by 0.2% during the first month of 2024 following a fall in output during the previous month.

The economy was boosted by stronger sales in shops and online and more construction activity in January.

The ONS said the services sector led the bounce back after retailers struggled to draw in shoppers in December.

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said: ‘Today’s data, showing an estimated 0.1% decline in GDP in the three months to January, is further evidence that the UK economy remains in a precarious state.

‘However, estimated growth of 0.2% in January may indicate the 2023 technical recession is over.

‘Businesses are clear about the factors that are holding back growth – high inflation, high interest rates, skills shortages, a lack of infrastructure investment and trade barriers with the EU.

‘Last week’s Budget saw some positive measures for businesses, including an increase to the VAT registration threshold. However, the statement was not a game changer and the UK stills lacks a clear industrial strategy to unlock long-term growth.’

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UK fell into recession at the end of 2023

The UK economy fell into recession during the final three months of last year, according to the Office for National Statistics (ONS).

GDP dropped by 0.3% during the fourth quarter of 2023, which was a sharper fall than expected. That follows a 0.1% fall between July and September.

The UK is considered to be in recession if GDP falls for two successive three-month periods – or quarters.

The figure for the final three months of last year was worse than a 0.1% fall widely forecast by financial markets and economists.

According to the ONS, there a slowdown in all the main sectors it measures to determine the health of the economy, including construction and manufacturing.

Alex Veitch, Director of Policy and Insight at the British Chambers of Commerce, said: ‘Businesses were already under no illusion about the difficulties they face, and this news will no doubt ring alarm bells for Government. 

‘The BCC’s last Quarterly Economic Forecast suggests annual growth below 1.0% for the next two years as firms remained gripped by uncertainty and the twin perils of high inflation and interest rates remain.?? 

‘The Chancellor must use his Budget in just under three weeks’ time to set out a clear pathway for firms and the economy to grow. 

‘Businesses are crying out for a long-term economic plan that reduces the cost pressures they are facing and unlocks the investment they so sorely need.’ 

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Fall in government borrowing ‘increases possibility of tax cuts’ in Budget

Data published by the Office for National Statistics (ONS) has revealed that government borrowing fell to £7.8 billion in December 2023, increasing the possibility of tax cuts in the upcoming Spring Budget.

Experts have suggested that the latest figures may give Chancellor Jeremy Hunt additional ‘wiggle room’ for tax cuts in the Spring Budget on 6 March. During the World Economic Forum’s annual meeting in Davos, Switzerland, Mr Hunt hinted that he wants to cut taxes, and stated that low-tax economies are ‘more dynamic, more competitive and generate more money for public services’.

The ONS data also showed that interest payments on government debt fell to £4 billion, down by £14.1 billion when compared to December 2022.

Commenting on the data, a spokesperson for the Treasury said: ‘We are focused on creating a more productive public sector, not a larger one, by reducing admin workloads, introducing early interventions and safely bringing in new tech like AI. This will stop the state growing ever larger and ensure taxpayers’ money is spent on the public’s priorities.’ 

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BCC warns there are ‘uncertain times ahead’ for global trade

Responding to trade data for November 2023 published recently by the Office for National Statistics (ONS), the British Chambers of Commerce (BCC) has warned that there are ‘uncertain times’ ahead in regard to global trade.

The ONS’s data showed a decline in UK trade in goods for both imports and exports. It attributed the decline to a fall in trade flows with the rest of the world.

According to the ONS, overall goods import volumes fell by 3.8% in November, whilst overall goods export volumes fell by 2.8%. Regarding services, the ONS found that import and export values fell slightly.

Commenting on the data, William Bain, Head of Trade Policy at the BCC, said: ‘The positives are there was a pick-up in some export sectors in goods trade with the EU, particularly in automotive sales. Services also remained steady for a further month, with only very small declines. But other indicators for November were weak, particularly on imports.?

‘Looking ahead the picture is only likely to worsen as the effects of the disruption to shipping in the Red Sea, and through the Suez Canal, begin to be fully felt.’ 

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UK economy shrank in October

The UK economy shrank by more than expected in October, with higher interest rates and bad weather taking their toll, according to the latest figures from the Office for National Statistics (ONS).

The economy shrank by 0.3% during the month after growth of 0.2% in September.

Retail and tourism were hit by severe weather in October as Storm Babet lashed the UK.

Most economists had predicted that the economy would shrink by just 0.1% that month, but the services, manufacturing and construction sectors all contracted.

Ben Jones, Lead Economist at the Confederation of British Industry (CBI), said: ‘Businesses are gearing up for another tough year ahead. Faced with weak demand and ongoing pressures on costs, companies are taking a hard look at their overheads and pursuing a cautious approach to staffing levels and investment.

‘With an election on the horizon, it’s important to avoid adding any extra layers of uncertainty to the business environment. Seeking as much consensus as possible on growth-enhancing measures such as speeding up planning and grid connectivity or policies to encourage innovation and tech adoption would help to build confidence and unlock further investment.’

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Inflation falls to two-year low of 4.6%

Data published by the Office for National Statistics (ONS) has revealed that inflation has fallen to a two-year low of 4.6%.

The ONS found that the UK’s rate of inflation fell to 4.6% from 6.7% in September. It revealed that a ‘small reduction’ in the energy price cap helped to bring the inflation rate down. According to the data, electricity costs are down 15.6% compared to a year earlier, whilst gas costs are down by 31%.

The latest inflation rate of 4.6% is the lowest since November 2021. Prime Minister Rishi Sunak welcomed the news, but reiterated the government’s target to reduce inflation to 2%.

Commenting on the data, Grant Fitzner, Chief Economist at the ONS, said: ‘Inflation fell substantially . . . as last year’s steep rise in energy costs has been followed by a small reduction in the energy price cap this year.

‘Food prices were little changed on the month after rising this time last year, while hotel prices fell, both helping to push inflation to its lowest rate for two years.’ 

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UK wages grow at record rate

Wages grew at a record annual pace between April and June, according to data from the Office for National Statistics (ONS).

Average weekly earnings, excluding bonuses, hit an annual growth rate of 7.8% during the quarter, the highest annual growth rate since comparable records began in 2001.

Pay, including bonuses, reached 8.2%, the largest annual growth outside of the pandemic.

The ONS data also showed that the UK employment market is easing as unemployment rose from 4% to 4.2%, while the number of people in employment fell slightly.

Jane Gratton, Deputy Director, Public Policy at the British Chambers of Commerce said: ‘Today’s figures showing pay growing at a record annual pace highlight the unrelenting workforce pressures businesses are facing. In a tight labour market, employers are struggling to contain wage inflation as the expectations of their staff and job candidates continue to rise.

‘In the current challenging economic climate, boosting productivity is essential, and investment in skills is crucial to making that happen. We need the government to create the right conditions. For example, by reducing upfront business costs, enabling a more flexible apprenticeship levy and ensuring more access to rapid retraining courses.’

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UK economy grows by 0.2% in second quarter of 2023

The UK’s GDP expanded by 0.2% in the second quarter of the year, according to the latest figures from the Office for National Statistics (ONS).

This follows growth of 0.1% in the first quarter of 2023 and beat forecasts which predicted no growth between April and June.

In June, the economy fared better than expected, with growth of 0.5%. That follows the GDP fall of 0.1% in May, and growth of 0.2% in April.

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said the news was ‘better than expected’ but warned ‘the UK economy remains in a precarious place’.

Mr Bharier continued: ‘While the UK remains on course to avoid a technical recession, small movements in one direction or the another won’t mean much for many firms facing the toughest trading conditions in years.

‘Our latest Quarterly Economic Survey shows that most SMEs continue to report no improvement to investment, cash flow or sales. Worryingly, 41% of businesses are now concerned about the impact of rising interest rates.

‘UK businesses are very adaptable, but they are looking for clear direction from the government and the Bank of England, particularly on interest rate policy and a long-term plan to unlock investment.’

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