UK economy stuck in first gear as GDP plunges in March
The UK economy inched forward by just 0.1 per cent in the first quarter of the year as growth remained firmly stuck in the slow lane, new official figures revealed on Friday.
Latest data from the Office for National Statistics showed GDP fell by 0.3 per cent in March following 0.5 per cent growth in January and no growth in February.
The March slump is worse than feared by City forecasters who said that the economy appeared to have been harder hit than expected by cold and wet weather which suppressed high street sales, and the impact of disruptive strikes.
The first quarter figure means the economy is almost certain to avoid recession this year — as the Bank of England declared on Thursday — but is continuing to creep forward at only a glacial pace.
It is still 0.5 per cent smaller in real terms than before the pandemic.
The ONS said the dominant services sector grew by 0.1 per cent over the January to March quarter as a whole suggesting the post-pandemic resilience of consumers may be coming under strain.
Responding to the figures, Chancellor Jeremy Hunt said: "It’s good news that the economy is growing but to reach the Government’s growth priority we need to stay focused on competitive taxes, labour supply and productivity.
"The Bank of England Governor confirmed yesterday that the Budget has made an important start but we will keep going until the job is done."
Prime Minister Rishi Sunak has vowed to halve inflation, currently at 10.1 per cent, by the end of the year and boost economic growth by helping people back into work and creating new jobs.
But Labour’s shadow chancellor Rachel Reeves accused the Tories of taking Britain "down a path of managed decline of low growth and high taxes".
“Despite our country’s huge potential and promise, today is another day in the dismal low growth record book of this Conservative government," she said.
“The facts remain that families are feeling worse off and we’re lagging behind on the global stage.
The latest GDP data comes the day after the Bank of England raised its interest rate by a quarter point to a new 14-year high of 4.5 per cent.
It also warned that while the threat of a long recession has been averted, growth will remain slow for the next three years with GDP projected to advance by only 0.25 per cent this year, and 0.75 per cent in 2024 and 2025, before accelerating to 1.25 per cent in 2026.
Natwest chairman Sir Howard Davies warned on Friday that one more interest rate rise was “probable” but double digit inflation would likely fall next month.
“We are worse off,” he told LBC. “We have seen decline in real incomes. If we want to catch up we have got to have increased investment and higher productivity.”
Growth in the second quarter is likely to be held back by the extra day’s holiday to mark the Coronation last week.
A long slump lasting much of 2023 and 2024 had previously been forecast following the surge in energy costs after Russia’s invasion of Ukraine, and the financial turbulence caused by last September’s ill-fated mini-Budget.
However, the economy has proved more resilient than expected over the winter in part because of a faster than expected fall in gas prices but also a surge in pent-up spending after Covid restrictions were lifted.
Thomas Pugh, economist at consulting firm RSM UK, said: “The 0.1 per cent rise in GDP in Q1 means the UK has probably avoided a recession altogether this year. Admittedly, the economy will probably contract in Q2 due to the impact of bad weather, strikes and an extra Bank holiday.
“But we expect GDP to rebound in the second half of the year meaning there won’t be the two consecutive quarters of negative GDP growth needed to satisfy the usual definition of a recession. Of course, that is a technicality. The big picture is that the economy is still 0.5 per cent below its pre-pandemic level and is unlikely to regain that level until the end of the year at the earliest.”
Jenny Blyth, owner of London-based retailer Storm In A Teacup Gifts said: “Small businesses are fighting to survive while our government continues to act like everything is fixed and ticking along nicely.
“Here on the ground, in the small business community, people are shutting their doors every single day and losing something that they fought to build, and it is heartbreaking.”