UK economy returns to growth in January

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

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

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

The newest GDP determine might give the chancellor, Jeremy Hunt, a slight increase earlier than subsequent week’s funds, 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 measurement.

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

“Throughout the final three months as an entire and, certainly during the last 12 months, the financial system has, although, confirmed zero progress,” he mentioned.

“The principle drivers of January’s progress had been the return of kids 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 providers additionally partially recovered from the consequences of December’s strikes.” These elements had 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 through the soccer World Cup helped maintain progress in optimistic territory within the remaining quarter of final yr, Workplace for Nationwide Statistics figures present. The rise went towards economists’ expectations to maintain the UK out of a recession, which is outlined as two consecutive quarters of unfavorable progress.

The newest official figures will feed into the Workplace for Price range Accountability’s outlook for the financial 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 file falls in dwelling 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 yr however it’s predicted to be shallower and shorter than earlier estimates.

Hunt mentioned: “Within the face of extreme international challenges, the UK financial 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, scale back debt and develop the financial system – so we are able to enhance dwelling 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 gasoline costs and easing of provide chain disruptions supplied a great addition to financial prospects firstly of 2023,” she mentioned. “However this is probably not ample to stave off a recession within the first half of this yr, 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 yr.

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 not less than halve by the top of the yr.

Ben Jones, CBI Lead Economist, mentioned:“The slight rebound in progress firstly of the yr 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. Nevertheless, sentiment is bettering, and enterprise leaders are hopeful of a extra steady working setting later this yr.
“The federal government ought to use the forthcoming funds to beat the prevailing financial headwinds by tackling the boundaries holding companies again. This contains fixing labour shortages by reforming childcare and serving to deliver extra working dad and mom again into the workforce, in addition to discovering a substitute to the tremendous deduction forward of the deliberate six-point improve in company tax.”

George Lagarias, Chief Economist at Mazars feedback: “We will’t actually say we’re too stunned that UK GDP progress exceeded expectations for January. For one, shoppers have been stronger than beforehand anticipated, as tight employment circumstances imply that wage progress is considerably catching up with inflation. Moreover, exterior demand from the massive 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 technology and we might see extra weak spot forward, we predict that pessimism at the start of the yr might have been overdone. Having mentioned that, we count on circumstances to stay risky and tepid till inflation comes down sufficiently.”

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