"The UK had bounced back from the technical recession it fell into in the second half of last year when high interest rates, high inflation and persistent industrial action dented output."
- Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners
UK GDP is estimated to have grown by 0.6% in Q1, following falls in the previous two quarters, the latest ONS figures show. Compared with the same quarter a year ago, real GDP is estimated to have increased by 0.2%.
This means the economy has exited its technical recession following two consecutive quarters of negative growth in Q3 and Q4 2023.
In output terms, services grew by 0.7% on the quarter with widespread growth across the sector; elsewhere the production sector grew by 0.8% while the construction sector fell by 0.9%.
Monthly GDP is estimated to have increased by 0.4% in March, following growth of 0.2% in February.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, commented: “While better-than-expected growth of 0.4% in March was positive news for the economy, the 0.6% expansion in the first quarter was even better as it confirmed that the UK had bounced back from the technical recession it fell into in the second half of last year when high interest rates, high inflation and persistent industrial action dented output.
“The recovery in March and across the first quarter was largely driven by robust growth in the services sector, with the lack of industrial action in the health sector in March delivering a further boost.
“With the short and shallow recession now behind us, households can breathe a sigh of relief and hopefully look forward to better times ahead. While the big sticking point for consumers has been the Bank of England’s cautious stance towards interest rate cuts, the rate-setting Monetary Policy Committee shifted its stance this week, raising the likelihood of a summer rate cut, perhaps as soon as next month, though many households would prefer that to be a certainty than a possibility to ease the financial pressures they are facing.
"With heavy hints from the BoE that a base rate cut is imminent, with the potential of more cuts than the financial markets have already priced in, the hope is mortgage rates and other borrowing costs will ease back from here."
Derrick Dunne, CEO of YOU Asset Management, added: “These latest GDP figures contain some significant positives for the UK. Beating back a recession, albeit a short one, is a good start. This is the strongest quarterly GDP growth we’ve seen since before the pandemic, suggesting that the economy is beginning to return to previous trends, which will be a relief for many.
“GDP per capita has returned to growth for the first time in nearly two years. This is indicative of the effect of subsiding inflation and strong wage growth as people begin to feel improving conditions for the first time since the inflation crisis began. GDP per capita has some way to go to recover fully however as it is still 0.7% lower than a year ago.
“This does raise questions around rates and the economy’s tolerance for higher levels. If inflation continues to ease and the economy returns to robust growth, then the argument runs that the country can take higher rates and there’s no need to start cutting aggressively – despite hints from the Governor yesterday that the Summer could see a cut. The qualifier here could be how the employment market holds up. There are tentative signs of a slowdown in the jobs market but wage growth is still relatively strong."
