UK economy entering "brighter period" after powering out of recession

(Alliance News) - The UK economy has "powered" out of recession and is in "recovery mode" analysts on Friday said, reflecting on latest economic growth data.

The UK economy grew by more than expected in March and in the first quarter of 2024, according to official numbers.

UK gross domestic product increased by 0.4% in March from February, the Office for National Statistics reported. This was ahead of FXStreet-cited market consensus of 0.1% growth. UK GDP had expanded by 0.2% on-month in February, according to revised data from the ONS.

In the first quarter of 2024, GDP is estimated to have grown by 0.6%, beating expectations of a 0.4% increase and following a 0.3% decline in the fourth quarter of 2023 and a 0.1% decline in the third quarter.

Compared with the same quarter a year ago, GDP rose 0.2%.

The ONS also said that industrial production increased by 0.2% in March from February. It was expected to decline by 0.5%, according to FXStreet. Production had risen by 1.0% in February from January.

On an annual basis, industrial production improved by 0.5% in March, having risen by 1.0% a month earlier.

ING's James Smith said the UK economy "powered" out of its technical recession in the first quarter, judging by the initial GDP figures.

Admittedly the data underlying that number has been pretty volatile, he noted, with some of that bounce, and the 0.3% contraction that came before it in the fourth quarter, linked to a suspiciously large fall in retail activity at the end of last year which was fully recouped in January.

Likewise, GDP increased by 0.4% in March alone, and some of the drivers of that, like hospitality and administration, look more like "noise than signal," he suggested.

Still, it tallies with other economic indicators which suggest the economy is entering a period of stronger growth, Smith said.

He pointed out the purchasing managers indices are the most obvious example, and these are consistent with continued momentum in the second quarter.

Even here though, there is some debate over whether the numbers are being artificially boosted by "residual seasonality," he noted.

"Volatility aside, there are genuine reasons to think the economy should continue growing more strongly. Real wage growth is positive, and is likely to become even more so as the year goes on. Headline inflation is likely to be below the 2% target from May onwards, with nominal wage growth at 6% and falling more slowly," Smith commented.

He pointed out that around two-thirds of the mortgage squeeze is behind us now and will weigh less strongly on growth in the quarters ahead.

"The bottom line is that the economy is entering a brighter period," he remarked.

Roman Ziruk, senior market analyst at Ebury said: "It’s official: the mild technical recession is over. Today’s data confirmed that the UK economy is in recovery mode and at a pleasing pace."

"The data provided a small boost to sterling Friday morning but had little impact on interest rate pricing. Markets continue to assign little over a 50/50 chance of a first cut in June. UK economic growth at the start of the year was quite strong, but considering the details of the release, it may not drastically change the BoE’s view of the situation."

By Jeremy Cutler, Alliance News reporter

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