UK economy returns to growth in January

The Workplace for Nationwide Statistics stories that GDP grew by 0.3% throughout January, after shrinking by 0.5% in December.

That’s a quicker restoration than anticipated after the economic system stalled within the last quarter of 2022.

Analysts had anticipated modest progress of simply 0.1% as strike motion and the price of residing disaster prevented a restoration in shopper and enterprise exercise.

The newest GDP determine might give the chancellor, Jeremy Hunt, a slight enhance earlier than subsequent week’s finances, when he’ll set out the federal government’s tax and spending insurance policies.

It additionally provides to problem dealing with the chancellor to fulfill his goal to get authorities debt falling as a share of GDP. The nation is the one one amongst its G7 friends that has not but recovered its pre-pandemic dimension.

Darren Morgan, ONS director of financial statistics, mentioned the economic system had “partially bounced again” from the big fall seen in December.

“Throughout the final three months as a complete and, certainly over the past 12 months, the economic system has, although, confirmed zero progress,” he mentioned.

“The principle drivers of January’s progress have been the return of youngsters to school rooms, following unusually excessive absences within the run-up to Christmas, the Premier League golf equipment returned to a full schedule after the top of the World Cup and personal well being suppliers additionally had a powerful month,” Morgan added.

“Postal companies additionally partially recovered from the results of December’s strikes.” These elements have been partly offset by a pointy drop in development because of a slowdown in infrastructure tasks and housebuilding, partly due to heavy rainfall.

A lift in spending in the course of the soccer World Cup helped maintain progress in optimistic territory within the last quarter of final 12 months, Workplace for Nationwide Statistics figures present. The rise went in opposition to economists’ expectations to maintain the UK out of a recession, which is outlined as two consecutive quarters of damaging progress.

The newest official figures will feed into the Workplace for Funds Duty’s outlook for the economic system, which is because of be printed together with the chancellor’s tax and spending plans on Wednesday. The official forecaster warned in November that the UK confronted two years of document falls in residing requirements and is predicted to downgrade its forecasts for progress within the medium time period.

The Financial institution of England nonetheless expects a downturn this 12 months however it’s predicted to be shallower and shorter than earlier estimates.

Hunt mentioned: “Within the face of extreme international challenges, the UK economic system has proved extra resilient than many anticipated, however there’s a lengthy strategy to go.

“Subsequent week, I’ll set out the following stage of our plan to halve inflation, cut back debt and develop the economic system – so we will enhance residing requirements for everybody.’’

Yael Selfin, chief economist at KPMG UK, mentioned a recession is “nonetheless on the playing cards regardless of a brightening outlook”.

“The marked fall in wholesale fuel costs and easing of provide chain disruptions offered a great addition to financial prospects at the beginning of 2023,” she mentioned. “However this will not be adequate to stave off a recession within the first half of this 12 months, as shopper spending stays weak with households persevering with to be squeezed by elevated costs and better rates of interest.”

Selfin added that the downturn is predicted to be shallower and shorter than beforehand thought, with enterprise confidence set to enhance as inflation falls, supporting progress within the second half of the 12 months.

Inflation fell to 10.1 per cent in January, down from a 41-year excessive of 11.1 per cent in October, and is predicted to a minimum of halve by the top of the 12 months.

Ben Jones, CBI Lead Economist, mentioned:“The slight rebound in progress at the beginning of the 12 months wasn’t altogether stunning, given the sharp drop in December. However exercise is prone to be subdued within the near-term, given the headwinds of excessive inflation, still-high vitality costs and rising rates of interest. Nonetheless, sentiment is enhancing, and enterprise leaders are hopeful of a extra secure working surroundings later this 12 months.
“The federal government ought to use the forthcoming finances to beat the prevailing financial headwinds by tackling the obstacles holding companies again. This consists of fixing labour shortages by reforming childcare and serving to deliver extra working mother and father again into the workforce, in addition to discovering a alternative to the tremendous deduction forward of the deliberate six-point improve in company tax.”

George Lagarias, Chief Economist at Mazars feedback: “We are able to’t actually say we’re too shocked that UK GDP progress exceeded expectations for January. For one, customers have been stronger than beforehand anticipated, as tight employment situations imply that wage progress is considerably catching up with inflation. Moreover, exterior demand from the large international economies, such because the US and China, has been stronger than anticipated.

“Whereas the broader financial backdrop might be essentially the most tough in a era and we might see extra weak spot forward, we expect that pessimism at first of the 12 months might have been overdone. Having mentioned that, we anticipate situations to stay risky and tepid till inflation comes down sufficiently.”

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