UK Economy Exits Recession with Strongest Growth in Nearly Three Years, Surpassing Forecasts

The Office for National Statistics reported a growth rate of 0.6% for the quarter ending in March, a figure not seen since the 1.5% increase in the final quarter of 2021.

In the first quarter of 2024, the UK economy experienced significant growth, marking the largest expansion in nearly three years.

This economic rebound allowed Britain to emerge from a shallow recession that had persisted since the latter half of the previous year.

The Office for National Statistics reported a growth rate of 0.6% for the quarter ending in March, a figure not seen since the 1.5% increase in the final quarter of 2021.

Prime Minister Rishi Sunak responded positively to the growth figures, suggesting that the UK economy had “turned a corner.”

Conversely, the opposition Labour Party remained critical.

Labour’s finance spokesperson, Rachel Reeves, argued that it was not a time for celebration, emphasizing the ongoing economic challenges faced by citizens: “This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good.”

Finance Minister Jeremy Hunt highlighted the significance of the growth, seeing it as evidence of economic recovery since the pandemic: “There is no doubt it has been a difficult few years, but today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic.”

Comparatively, the UK’s growth was more robust than some of its major counterparts, outpacing both the euro zone’s 0.3% and the United States’ 0.4% quarterly growth rates.

However, the overall recovery trajectory for the UK remains one of the slowest among the leading advanced economies, primarily due to the impacts of the pandemic and recent geopolitical tensions, including the surge in European natural gas prices following Russia’s invasion of Ukraine in 2022.

By the end of March 2024, the UK economy was only 1.7% larger than its late 2019 level, with Germany being the only G7 country with a slower recovery.

KPMG UK’s chief economist, Yael Selfin, expressed caution about the future, noting potential constraints due to ongoing productivity growth issues and limited employment opportunities: “Despite the better near-term outlook, the improvement in GDP growth looks likely to be constrained by the ongoing weakness in productivity growth as well as reduced scope to increase employment levels.”

The GDP data also surprised the Bank of England (BoE), which had maintained interest rates at a 16-year peak just a day before the announcement.

Economists from the Japanese bank Nomura speculated that this unexpected growth might prompt a reassessment of future economic projections and inflation rates: “This is likely to be a surprise to the MPC and may result in upward revisions to inflation at the next Monetary Policy Report.”

Additionally, the monthly data revealed a 0.4% economic growth in March, driven by sectors like retail, public transport, haulage, and healthcare.

The performance was aided by fewer public-sector strikes, contrasting with the continued downturn in the construction sector.

Despite these positive developments, challenges remain, particularly concerning living standards.

As noted by economist Gora Suri from PwC, “In per capita terms, it could be said that UK households have seen little meaningful improvement in living standards in the last two years.”