UK economy bounces back with stronger than expected January GDP print
City workers in Paternoster Square, home of the London Stock Exchange headquarters, in the City of London, UK, on Thursday, March 2, 2023.
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LONDON – The UK economy grew 0.3% in January, official figures showed on Friday, beating expectations as it continues to stave off what economists see as an inevitable recession. .
Economists polled by Reuters had projected a monthly increase of 0.1% in GDP. GDP was flat over the three months to the end of January, the Office for National Statistics said.
“The services sector grew by 0.5% in January 2023, after falling by 0.8% in December 2022, with the largest contributions to growth in January 2023 coming from education, transportation and storage, human health activities, and arts activities, entertainment and leisure, have all rebounded after falling in December 2022,” the ONS found.
Manufacturing output fell 0.3% in January after growing 0.3% in December, while the construction sector fell 1.7% in January after being flat the previous month.
The UK economy showed no growth in the last quarter of 2022 to avoid a recession – commonly defined as two quarters of negative growth – but it contracted 0.5% in December.
The UK remains the only country in the major G-7 (Group of Seven) economies that has yet to recover its lost output due to the Covid-19 pandemic. The ONS said on Friday that monthly GDP is now estimated to be 0.2% below its pre-pandemic levels.
Both the Bank of England and the Office for Budget Responsibility have forecast a five-quarter contraction starting in the first quarter of 2023, but the data so far has exceeded expectations.
Despite the better-than-expected January print, economists still believe activity is on a downward path, as high inflation eats into household incomes and business activity.
UK inflation eased to 10.1% annualized in January, continuing to decline after hitting a 41-year high of 11.1% in October but remaining well above the Bank of England’s 2% target.
Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said the “modest” rebound in January indicates that the economy is still on a “downward path.” “
“We are likely to continue flirting with recession through most of 2023, as high inflation, tax increases and the weakening effect of rising interest rates erode consumer spending power , despite an increase from reducing energy costs,” said Thiru.
Finance Minister Jeremy Hunt will deliver the government’s budget on Wednesday and is expected to announce further measures to manage the country’s cost of living crisis.
“The Spring Budget could have a major impact on the UK’s long-term growth prospects. While extending energy support will provide some relief to struggling households, aggressive tax increases would risk eliminate any momentum from the economy,” Thiru said.
Tom Hopkins, portfolio manager at BRI Wealth Management, noted that monthly figures are difficult to read at the moment, given the trends over the past six months – such as the funeral of Queen Elizabeth II and the World Cup – which partially affected customer services.
“The underlying trend in the economy appears to be one of gradual contraction, partly due to the continued decline in retail spending,” he said. “We expect a technical contraction in the UK in the first half of this year, although it’s not as bad as the first one.”
This is new news and will be updated soon.