The UK has emerged from a brief recession with an unexpectedly high Q1 growth rate of 0.6%.
The GDP figures, announced by the ONS today (10 May), reflect the fastest UK quarter-on-quarter growth since 2021, a performance that outstrips both the eurozone (0.3%) and the US (0.4%) over the same period.
Trade figures from the same period were less positive, with a net fall in trade volumes recorded.
Output
The ONS release revealed a strong quarter for production and services, with output increases of 0.8% and 0.7% respectively.
Production was largely driven by growth in manufacturing, with eight out of 13 subsectors performing positively. This was led by the manufacture of production equipment, which grew 5.7%, having experienced growth for six consecutive quarters. Overall manufacturing output is estimated to have increased by 1.4% in Q1.
Services output increased for the first time since Q1 of 2023, with 11 out of 14 subsectors increasing output this quarter. Transport and storage services grew 3.7%, while professional, scientific and technical activities increased 1.3%.
In response to the figures, Henry Cook, senior economist at Japanese bank MUFG, said that the “economy started the year with a bang” and that recession was “firmly in the rear-view mirror”.
Trade
However, it was a less explosive start for trade. Despite a boost in the production of transport equipment, ONS figures on trade found that a decline in international sales of the sector’s goods, along with machinery, led an overall fall in goods exports of 3.4%.
This offset a 1% increase in services exports to leave the UK with a net 1% decrease in exports. The increase in services exports was driven by travel, transport and intellectual property services. Q1 imports also fell 2.3%.
Interest rates
Yesterday (9 May), the Bank of England (BoE) decided to hold interest rates at 5.25% – a 16-year high.
The chances of next month’s rate review leading to a cut to 5% have now increased, according to money markets. Ahead of yesterday’s BoE decision, there was a 45% chance of a cut, which increased to 48% following today’s growth announcement.
Cook said it was too soon to tell whether the time was right for a future rate cut:
“Today's figures may give the BoE some pause for thought, but the focus will remain on key upcoming data on inflation and wage growth.”
Political implications
The growth figures could provide some relief to prime minister Rishi Sunak following substantial losses in last week’s (2 May) local elections. He said the figures indicated that the economy has “turned a corner".
Chancellor Jeremy Hunt cited the figures as “proof that the economy is returning to full health for the first time since the pandemic”.
However, his Labour counterpart, Rachel Reeves, was quick to dismiss this, saying that the economy is “still £300 smaller per head” than when Sunak entered office in 2022.