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UK GDP growth: Country exits recession in ‘fragile’ recovery ahead of election


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Serving a customer at 40 Dean Street, an Italian restaurant located in London’s Soho district, in June 2023.


London
CNN

The UK has emerged from a short and shallow situation recessionGiving Prime Minister Rishi Sunak a much-needed boost ahead of elections expected later this year.

Data released by the Office for National Statistics (ONS) on Friday showed that gross domestic product grew by 0.6% in the first three months of the year compared to the previous quarter.

This increase follows a decline of 0.3% in the fourth quarter and 0.1% in the third quarter of last year. A recession is usually defined as two consecutive quarters of economic contraction.

The ONS said the expansion early this year was driven by “broad-based growth” in the dominant services sector, where output rose 0.7% during the quarter after falling late last year.

according to Expectations Published on Thursday, the Bank of England now expects UK GDP to grow by 0.5% this year, double the pace it forecast in February. By comparison, GDP rose last year by a meager 0.1%.

There are other signs that the economic outlook is improving. In April, combined output in manufacturing and services posted its strongest rise in nearly a year, according to a survey of purchasing managers by S&P Global. Once again, service companies led this expansion.

However, compared to its peers, the UK economy is performing less well.

Last month, the International Monetary Fund lowered its forecast for economic growth in Britain this year from 0.6% to 0.5%. This is the second slowest projected growth rate among the Group of Seven advanced economies, ahead of only Germany.

“Although there are welcome signs of improvement, any recovery is still at an early stage and is likely to be fragile,” said Roger Parker, head of policy at the Institute of Directors, a business lobby group.

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However, signs of growth this year will provide some relief to Sunak and the struggling ruling Conservative Party Huge losses In the local elections last week, which does not bode well for the party’s chances in the general elections. Sunak suffered further embarrassment this week when one of his MPs defected to the opposition Labor Party.

Jeremy Hunt, Britain’s finance minister, said in a statement that the growth figures are “evidence that the economy is returning to full health for the first time since the pandemic.”

But Rachel Reeves, his Labor counterpart, said that despite the rise in GDP, British households were still struggling.

“Food prices remain high, families are paying more on their monthly mortgage bills, and workers are worse off,” she wrote in an article. Share on X. “From no growth to low growth – is this really the scale of the Conservatives’ ambitions?”

Opinion polls indicate that the Labor Party is on the right track to win over the Conservatives in the general elections. in reconnaissance In a YouGov poll this week, 48% of respondents said they intended to vote Labor in the election, compared to 18% for the Conservatives.

Mortgage rates may also remain high for longer if a return to economic growth delays interest rate cuts widely expected this year.

“Stronger GDP growth increases the risk of strong demand pressures on inflation,” analysts at Nomura Bank wrote in a note, adding that Friday’s GDP release “casts doubt” on the June cut. They expect the Bank of England to start lowering the cost of borrowing in August.

The UK’s annual inflation rate reached 3.2% last month, a sharp slowdown from a rate above 10% almost a year ago. The central bank is targeting an interest rate of 2%, and expects to reach it more or less in the next few months, according to its governor, Andrew Bailey.

“Inflation has come down a lot… (but) we need to see more evidence that inflation will remain low before we can lower interest rates,” he said on Thursday, after the central bank announced its decision to keep official borrowing costs at 5.25%.

Bailey did not rule out cutting interest rates in June, but told reporters that this was not a given and he would benefit from data released in the coming weeks on inflation and the labor market.

This story has been updated with additional information.





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