GDP returns to growth with 0.2% rise in January

Real GDP still remains 0.1% lower in the three months to January than the previous quarter.

Related topics:  Finance News,  GDP
Rozi Jones | Editor, Financial Reporter
13th March 2024
economy retail people street
"The Bank of England is likely to sit on its hands during the first half of the year as it waits for a clearer picture of where growth and inflation are heading."
- Tom Stevenson, investment director at Fidelity International

UK GDP is estimated to have grown by 0.2% in January, following a fall of 0.1% in December 2023, the latest ONS statistics show.

The return to growth follows the UK entering a technical recession at the end of last year, as GDP fell by 0.3% over the three months to the end of December.

However, despite the monthly growth seen in January, real GDP is still estimated to have fallen by 0.1% in the three months to January, compared with the three months to October 2023. Services output showed no growth in this period, while production output fell by 0.2% and construction output also fell, by 0.9%.

Nicholas Hyett, investment manager at Wealth Club, commented: “A stronger month for the dominant consumer sector, particularly consumer facing services, together with pick up in construction activity means the UK economy is back in growth in January – albeit modest. That was despite some disruption to global supply trains from conflict in the Middle East and Red Sea, and the impact of strikes in healthcare, railways and the Screen Actors Guild – all of which dented overall output.

"Overall performance is in line with market expectations, so unlikely to cause a major move in markets. But, if the return to growth can be sustained the country should be on course to exit recession in pretty short order – a relief for the government even if the man or woman on the street is unlikely to notice the difference between anaemic growth and mild recession."

Tom Stevenson, investment director at Fidelity International, said: “The UK’s short and shallow recession may already be over. GDP growth in January was, as expected, 0.2%, fuelled by a stronger service sector.

“Despite the return to growth, there was still a modest contraction for the three months from November to January compared to the prior three months. Alongside yesterday’s rise in unemployment and slowing wage growth, this shows that the UK economy is not out of the woods just yet.

“The Bank of England is likely to sit on its hands during the first half of the year as it waits for a clearer picture of where growth and inflation are heading.

“The recovery from the shallow recession during the second half of 2023 does, however, build on the more positive tone from the Office for Budget Responsibility which last week raised its forecasts for growth to 0.8% for 2024 and 1.9% in 2025."

Rob Morgan, chief investment analyst at Charles Stanley, added: "The UK economy could be on the road to recovery after it fell into a shallow recession in the second half of last year. GDP expanded by 0.2% in January 2024, in line with expectations as it rebounded from a weak end to 2023.

"While the first quarter of 2024 has got off to a reasonable start, it is only that. GDP is estimated to have fallen by 0.1% in the three months to January 2024, compared with the three months to October 2023. We must await data for February and March to confirm whether the UK has shaken off its mild recession.

"Clear signs of economic weakness would give confidence to the Bank of England to cut interest rates later this year. Although inflation is still twice the Bank’s 2% target, it should continue to fall and gradually approach that level by the autumn.

"Yet with employment and earnings holding up alongside an economy that is now showing signs of resilience, an imminent rate cut seems unlikely. The Bank will want to see a more substantial decline in wages, and in more sticky services inflation, before reducing borrowing costs. There are signs this will eventually come through. Job vacancies continue to fall, which indicates companies are wary of over hiring in an uncertain environment, but until these weaker indications are reflected in other data the Bank will be minded to keep rates on hold for the time being."

 

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