Britain’s economy showed a stronger-than-expected rebound from recession in the first quarter of this year, according to revised data released on Friday by the Office for National Statistics.
Gross domestic product (GDP) expanded by 0.7% compared to the previous quarter, up from the initial estimate of 0.6%.
This growth follows two consecutive quarters of contraction in the second half of 2023.
The improved economic performance comes amidst a fragile broader economic environment, just days before the upcoming election where polls indicate a likely victory for Keir Starmer’s Labour Party over Prime Minister Rishi Sunak’s Conservative Party.
However, the long-term economic outlook remains tepid, posing challenges for Sunak ahead of the election.
Year-on-year GDP growth for the first quarter was revised up to 0.3% from the initial 0.2%. Meanwhile, real household disposable income per head was 0.6% lower in early 2024 compared to late 2019, before the onset of the COVID-19 pandemic.
“Income growth over the parliament so far has been worse than in any other since the 1950s, and the third worst in post-Edwardian Britain,” noted Adam Corlett, principal economist at the Resolution Foundation, emphasizing the severity of the living standards slowdown.
The economy’s struggles are attributed not only to the enduring impacts of the pandemic on the labor market but also to inflation spikes following geopolitical events like Russia’s invasion of Ukraine and ongoing post-Brexit trade tensions.
Looking forward, the Bank of England anticipates GDP growth of 0.5% in the second quarter of 2024, suggesting a solid continuation of economic momentum from earlier in the year.
Household finances received a slight reprieve with real disposable income per head rising by 2.4% over the past year, buoyed by rapid wage increases amid a tight labor market.
Despite these short-term positives, the Bank of England remains cautious, viewing the robust first-half growth as a rebound rather than a sustained acceleration.
They estimate the underlying growth rate of the economy at around 0.25% per quarter.
In contrast, the government’s forecasters offer a more optimistic outlook, projecting annual growth to increase from 0.8% this year to nearly 2% in the near future, contingent on various economic reforms.
Labour leader Keir Starmer has expressed even higher aspirations, aiming for the highest sustained growth among G7 nations through infrastructure investments and housing reforms.
However, economists warn that Britain’s struggle to exceed 2% annual growth consistently since the 2008 financial crisis reflects underlying challenges, including sluggish productivity growth and declining foreign direct investment, as highlighted in recent data from the ONS.
Overall, while the revised GDP figures offer a brighter snapshot of immediate economic health, the path to sustained and robust growth remains uncertain, posing a critical challenge for whichever party prevails in the upcoming election.