UK no longer in recession, official figures show
The UK economy is no longer in recession, according to official figures.
Gross domestic product (GDP) grew by a better-than-expected 0.6% between January and March, the Office for National Statistics (ONS) said.
Economists had predicted the figure would be 0.4%.
Prime Minister Rishi Sunak said it showed the economy had “turned a corner”, adding: “We know things are still tough for many people, but the plan is working, and we must stick to it.”
A recession, which is defined as two consecutive three-month periods where the economy contracts, was declared in February.
It came after the ONS said GDP, a major measure of economic growth, shrank 0.3% between October and December. It followed a contraction of 0.1% in the three months from July to September.
The slump was blamed on reduced consumer spending power amid high inflation and energy bills. Months of wet weather also contributed to keeping shoppers at home, commentators said.
The latest figures also revealed better-than-expected growth for March. GDP was up 0.4% during the month, which was higher than the 0.1% forecast by economists.
GDP growth figures for February were also revised upwards by the ONS, from 0.1% to 0.2%.
While previous recessions have been long-lasting – such as during the global financial crash of 2008 and 2009 – the latest one had been expected to be short-lived.
Recession over with a bang – but will voters forgive government?
Britain is not just out of recession. It is out of recession with a bang.
The economic growth we saw reported this morning by the Office for National Statistics is not just faster than most economists expected, it is the fastest growth we’ve seen since the tail-end of the pandemic when the UK was bouncing back from lockdown.
But, more than that, there are three other facts that the prime minister and chancellor will be gleeful about (and you can expect them to be talking about this number for a long time).
First, it’s not just that the economy is now growing again after two-quarters of contraction (that was the recession).
An economic growth rate of 0.6% is near enough to what economists used to call “trend growth”, back before the crisis – in other words, it’s the kind of number which signifies the economy growing at more or less “normal” rates.
And normality is precisely the thing the government wants us to believe we’ve returned to.
Second, that 0.6% means the UK is, alongside Canada, the fastest-growing economy in the G7 (we’ve yet to hear from Japan, but economists expect its economy to contract in the first quarter).
Third, it’s not just gross domestic product (GDP) that’s up. So too is gross domestic product per head – the number you get when you divide our national income by every person in the country.
Economy ‘returning to full health’
Chancellor Jeremy Hunt described the figures as “encouraging” and said it showed that the economy was “returning to full health”.
He told Sky News: “I think that for families who’ve been having a really tough time, this is an indication that difficult decisions that we’ve taken over recent years are beginning to pay off and we need to stick with them.
“We’re seeing that inflation is falling faster and I think people recognise it’s been a very, very challenging period, but they don’t vote for Conservative governments for us to do popular things.
“They trust us to do the right thing for the long-term benefit of the economy and that is what we’ve been doing.”
However, opposition parties said there was little cause for celebration.
Labour’s shadow chancellor Rachel Reeves said: “This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good.
“The economy is still £300 smaller per person than when Rishi Sunak became Prime Minister.”
Lib Dems Treasury spokesperson Sarah Olney MP said: “This Conservative Government crashed the economy and sent mortgages spiralling.
“If Rishi Sunak thinks hard-hit households will be celebrating today, he is even more out of touch than we thought.”
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Liz McKeown, the ONS’s director of economic statistics, said: “There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well.
“Car manufacturers also had a good quarter. These were only a little offset by another weak quarter for construction.
“In the month of March the economy grew robustly led, again, by services with wholesalers, the health sector and hospitality all doing well.”
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‘Path is downwards’ on interest rates
Ruth Gregory, from research firm Capital Economics, said the figures suggested the UK’s economic recovery would be stronger than previously anticipated.
She added: “All the early indicators suggest that GDP growth rose robustly in April as well.
“At the margin, this may mean the Bank of England doesn’t need to rush to cut interest rates. But the timing of the first interest rate cut will ultimately be determined by the next inflation and labour market releases.”
The latest figures come after the Bank of England held interest rates at 5.25% on Thursday and issued new forecasts for the UK economy.
The Bank projected that growth would be stronger this year, with unemployment and inflation rates lower than previously expected.
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The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.
The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.
It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.
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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.
The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.
It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.
Why?
The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.
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Bank of England cuts interest rate
It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.
The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”
In turn, mortgage providers are reluctant to offer cheaper products.
A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.
This expectation can influence what rates lenders offer.
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