Double boost for UK
■Output beats forecasts to allay fears of recession ■Exports to EU hit an all-time high of £17bn
BRITAIN’S economy enjoyed a double boost as output climbed and exports to the EU jumped to a record high.
The economy grew by 0.5 per cent in May, according to the Office for National Statistics, surprising experts who had predicted output would flat-line.
It means the UK has only experienced one month of decline so far this year, allaying fears of a recession, after March and April’s figures were also revised up to growth of 0.1 per cent and a contraction of 0.2 per cent respectively.
And the UK’s exports to the EU hit an all-time high of £16.9billion – up £400million on a month earlier – making a mockery of claims that Britain’s trade with its European neighbours would fall off a cliff post-Brexit.
Economists had forecast a grim reading on output for May as households struggled through the cost of living crisis and businesses reined in spending.
But analysts at investment bank Goldman Sachs said the data had drastically reduced their predictions that the UK would tumble into a recession – defined as two consecutive quarters of economic contraction.
Goldman is now pencilling in a 35 per
■ THE euro was yesterday worth less than a US dollar for the first time in 20 years. The currency tumbled to $0.99.
The pound was also hit, falling toward a two-year low of $1.18, as the dollar soared and official figures revealed US inflation hit 9.1 per cent last month. The last time the euro traded below the dollar was in December 2002.
Analysts blamed the effect of Russia’s invasion of Ukraine. Lou Brien, at DRW in Chicago, said: ‘The sanctions that are trying to hurt Russia are also hurting the EU.’
cent chance of a recession this year, down from 45 per cent and well below the eurozone at 50 per cent.
New Chancellor Nadhim Zahawi said: ‘It’s always great to see the economy growing but I’m not complacent. I know people are concerned so we are continuing to support families and economic growth.
‘We’re working alongside the Bank of England to bear down on inflation and I am confident we can create a stronger economy for everyone across the UK.’
Experts said the signs of stronger growth could pave the way for the Bank of England to hike interest rates next month by 0.5 percentage points – the largest rise since 1997.
The Bank has been bumping up rates since December in an effort to bring down inflation which has soared due to Covid and the war in Ukraine. Currently the Bank’s base rate is at 1.25 per cent, up from its pandemic low of 0.1 per cent. Higher rates should in theory keep a lid on prices, as they encourage businesses and households to save rather than spend.
But this also puts a dampener on economic growth, meaning the Bank has been reluctant to jack up rates too aggressively.
Yet, with inflation currently at a 40-year high of 9.1 per cent, and set to soar higher in October when energy regulator Ofgem next raises the price cap on household bills, policymakers on Threadneedle Street may be weighing more drastic action.
Referring to the possible hike, Paul Dales, chief UK economist at Capital Economics, said that May’s figures suggest ‘the economy is holding up well in the face of high inflation’. Output in May was boosted by the healthcare sector, despite the end of the Test and Trace programme, as more people went to visit their GPs.
The production sector also grew while construction expanded for the seventh month in a row. But consumer-facing services, which include areas such as retail and hospitality, fell by 0.1 per cent as households tightened their belts.
David Bharier, of the British Chambers of Commerce (BCC), warned that May’s data ‘masks serious underlying issues of growing imbalances within the economy’. He said that many small businesses have reported ‘no improvement’ to cash flow, adding: ‘Uncontrolled inflation has now made it much more challenging to grow back out of the crisis.’
DESPITE the prophecies of doom over Brexit, the British economy seems to be doing rather well.
GDP jumped by 0.5 per cent last month and exports to the EU positively soared to their highest level since 1997. Inflation is still a huge concern, of course, and there may be further shocks ahead. But these numbers prove two things.
Firstly, business will find a way to overcome any obstacles thrown up by Brussels in order to maintain a healthy trade with Europe.
And second, ignoring all the cost of living turmoil around them, the British people are keeping calm and carrying on – working hard for the benefit of themselves, their families and their country.