UK emerges from recession with fastest growth in two years

UK emerges from recession with fastest growth in two years

Stronger-than-expected growth at the start of the year saw the UK emerge from recession.

The economy grew 0.6% between January and March, the fastest rate for two years, official figures showed.

The UK fell into recession at the end of last year after contracting for two consecutive three-month periods.

Prime Minister Rishi Sunak said the economy had “turned around”, but Labor said this was no time for a “victory lap”.

On Thursday, the governor of the Bank of England, Andrew Bailey, told the BBC that the UK is seeing a recovery, although it is not a strong one.

Interest rates are now at a 16-year high, meaning people are paying more to borrow money for things like mortgages and loans, but savers have also received better returns.

Mortgage rates have risen in recent weeks, after predictions that the Bank of England would cut borrowing costs were rejected.

On Thursday, the Bank said that inflation, which measures the rate at which prices rise, will fall close to its target level in the coming months. That has raised expectations of a rate cut in June. However, stronger-than-expected growth figures dampened those expectations.

Ruth Gregory, deputy chief UK economist at Capital Economics, said it showed “the Bank of England is in no rush to cut interest rates”.

He said the first rate cut would ultimately be determined by upcoming employment and inflation figures.

Growth earlier in the year was led by services – including sectors such as hospitality, arts and entertainment – and was likely to have been helped by an early Easter in March, the Office for National Statistics (ONS) said. Last year, Easter was in April.

There is anecdotal evidence from looking at credit card and debit card transactions that consumers have treated themselves to clothing and home furnishings.

Car manufacturers also had a good quarter, the ONS said, although the construction sector remained “weak”.

However, while the overall economy is growing again, many people may not feel better. When the effects of inflation – the rate of increase in prices – and population growth are stripped out, growth per head is still 0.7% lower than a year ago.

‘It feels like things are back on track’
Ed Beardwell, who has owned RollQuick cycle shop in Bristol for the past 11 months, said his business was now “just about breaking even”.

He mentioned the cost of living as an issue. “People are very cost sensitive in Bristol. A lot of bikes are stolen and that reduces the price anyone is willing to pay.”

Poor sales during the recession led to a focus on bike servicing, which now accounts for 70% of its revenue.

Mr Beardwell told the BBC that despite the disappointing winter, business appeared to have turned around.

“It feels like things are picking up again. When you look at the sales stats, we were down at this level last year but tracking better than at the end of last year.”

Although the economy contracted in the second half of last year, the recession was the mildest on record.

The recession was partly caused by people spending less as they faced higher prices in stores and higher interest rates driving up the cost of mortgages.

Yael Selfin, chief economist at KPMG UK, said “the worst is behind the UK economy”.

“We expect to see continued growth for the remainder of the year,” he added, with falling inflation and rising wages helping to “repair some of the damage to household incomes and support household consumption”.

Election issues
The size of an economy is measured by gross domestic product (GDP), which looks at all the economic activities of companies, governments and people in a country.

Most economists, politicians and businesses would like to see GDP rise steadily, as this usually means people spend more, additional jobs are created, more taxes are paid and workers get better pay raises.

The debate over the strength of the economic recovery is set to be a key battleground in the general election campaign.

Chancellor Jeremy Hunt said that while it had been a difficult few years, “today’s growth figures are proof that the economy is back to full health for the first time since the pandemic”.

Speaking to the BBC’s Today programme, he said: “For the families who are going through a very difficult time, I think they can see that the very difficult decisions that we have taken to recover the economy after the epidemic, after the energy shock, are beginning to bear fruit and we need to see it.”

Labour’s shadow chancellor, Rachel Reeves, who earlier this week accused the government of delusions about the state of the economy, said this was “not the time for Conservative ministers to do a victory lap”.

“After 14 years of economic chaos, working people are still worse off,” Ms Reeves added.

Liberal Democrat Treasury spokeswoman Sarah Olney said the figures were nothing to celebrate.

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