UK economy grew faster than expected as consumers spent more
On a per person basis, the economy recovered sharply as well
BRITAIN’S economy bounced out of recession with the strongest growth in more than two years and faster than previously estimated, with services and consumer spending both more robust than expected.
Gross domestic product expanded 0.7 per cent in the first quarter, the Office for National Statistics (ONS) said on Friday (Jun 28), upgrading its previous estimate for growth of 0.6 per cent. Most economists had expected no revision.
The figures are a boost for Prime Minister Rishi Sunak’s argument that the nation has turned the corner after a mild slump last year. The Bank of England expects steady growth the rest of the year as consumers benefit from rising wages and a loosening of the cost-of-living squeeze.
Services output jumped by 0.8 per cent, revised up from 0.7 per cent, capping three consecutive quarters of decline. That rebound was driven by professional services and scientific research and development. The ONS also reported stronger trade and consumer spending.
On a per person basis, the economy recovered sharply as well. GDP per head was up 0.5 per cent, revised up from 0.4 per cent, following seven consecutive quarters without growth. GDP per head is still 0.6 per cent below where it was a year ago, the ONS said.
UK living standards climbed for a second straight quarter to their highest level since the final half of 2021, driven by rising pay and falling tax, the ONS report showed. Adjusted for inflation, household disposable income per person rose 0.5 per cent, up from an 0.4 per cent gain in the fourth quarter.
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The figures are almost certain to be seized on by Sunak’s Conservatives, who are battling to avert catastrophic losses to the Labour opposition in the July 4 general election. The prime minister is trying to convince skeptical voters that the Tories can be trusted to run an economy that is now showing signs of improvement after the worst cost-of-living crisis in decades.
The figures are “good news for whoever is prime minister this time next week,” said Paul Dales, chief UK economist at Capital Economics. The economy may be “a bit stronger than already above-consensus forecast.”
Stronger growth may also make the BOE more concerned about lingering inflationary pressure, potentially holding off its first reductions in interest rates since the pandemic.
“At the margins, all this may make the Bank of England a bit less comfortable cutting interest rates in August,” Dales said.
Wages are once again growing faster than prices, helping to repair household finances that were battered by 2022’s energy-price shock and double-digit inflation. A further fillip is expected in the current quarter after April’s cut in payroll taxes and big increases in welfare payments, the state pension and the minimum wage.
However, it may still leave real incomes no higher than they were before the last election in 2019, and possibly lower.
There are still signs that consumers remain cautious. The savings ratio, which shows the amount of disposable income that people choose not to spend, rose to 11.1 per cent in the first quarter, the highest since the second quarter of 2021. That’s a sharp contrast with the US position, where consumers have lifted spending by holding back a relatively small portion of their incomes.
The Bank of England expects the UK economy to grow 0.5 per cent in the second quarter, faster than previously projected. BLOOMBERG
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