UK economy returns to growth at start of 2024, FTSE edges higher
Gross domestic product (GDP) grew by 0.2% month-onmonth - boosted by a rebound in retailing and house-building ater a fall of 0.1% in December
Britain’s economy returned to growth in January ater entering a shallow recession in the second half of 2023, offering some relief to Prime Minister Rishi Sunak ahead of an election expected this year, official data showed.
Gross domestic product (GDP) grew by 0.2 per cent month-on-month - boosted by a rebound in retailing and house-building - ater a fall of 0.1 per cent in December, in line with economists’ expectations in a Reuters poll.
“The economy picked up in January with strong growth in retail and wholesaling,” Liz Mckeown, a director at the Office for National Statistics, said. “Construction also performed well with house-builders having a good month, having been subdued for much of the last year.”
However, it is too early to know for certain if the economy is no longer in recession. GDP shrank by 0.3 per cent in the final quarter of 2023 and 0.1% in the quarter before - meeting the technical definition of recession widely used in Europe.
Britain’s economy has been very sluggish since its initial recovery from the COVID-19 pandemic, beset by a surge in the cost of energy imports from Russia’s invasion of Ukraine and, more recently, by high Bank of England interest rates.
But with inflation at 4 per cent in January, down from double-digit rates in much of last year, and forecast to return to its 2% target soon, the squeeze on household spending is easing and the BOE is starting to consider when to cut interest rates.
Sterling fell against the US dollar and the euro shortly ater the GDP figures were released, and investors added to their bets of a rates cut in June, although the first one is not fully priced in until August.
Wednesday’s data showed that GDP in January was 0.3 per cent lower than a year earlier and shrank by 0.1 per cent in the three months to January, both in line with economists’ forecasts.
“While the last few years have been tough, today’s numbers show we are making progress in growing the economy,” finance minister Jeremy Hunt, said.
Rachel Reeves, the opposition Labour Party’s would-be finance minister, said the Conservatives under Sunak and his predecessors had presided over “14 years of economic decline” and were to blame for the most recent recession.
Labour is running far ahead of the Conservatives
in opinion polls with an election expected in the second half of this year. The opposition party is now seen as more trusted to run the economy than the Conservatives, according to some polls.
The government’s Office for Budget Responsibility last week forecast an expansion of 0.8 per cent in 2024, more than the Boe’s projection in February of around 0.25 per cent growth.
Business surveys have pointed to a pick up with purchasing managers’ index data rising to a nine-month high in February. Previously published ONS data for January showed the biggest retail sales jump since COVID restrictions were lited in 2021.
Wednesday’s figures showed that construction output - which is oten volatile - jumped by 1.1 per cent in January, its biggest monthly rise since June and led by a 2.6 per cent rise in private-sector house-building, which had been depressed by high interest rates.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the data may not move the dial much for the BOE.
“A 0.1 per cent quarter-on-quarter rise in Q1 would match the Bank’s forecast and with domestic inflationary pressures fading, we think a rate cut this summer - perhaps in June - is still the most likely outcome,” Gregory said.
The UK’S blue-chip index edged higher on Wednesday ater data showed Britain’s economy returned to growth at the start of 2024, while corporate earnings also added to the positive mood.
The exporter-heavy FTSE 100 was up 0.1 per cent, as of 0814 GMT, following its strongest close in more than nine months on Tuesday.
The mid-cap FTSE 250 index rose nearly 0.2 per cent.
British gross domestic product in January grew by 0.2 per cent month-on-month, in line with economists’ expectations in a Reuters poll, boosted by a rebound in retailing and house-building.
The numbers offered some relief to Prime Minister Rishi Sunak ahead of an election expected this year, ater the country entered a shallow recession in the second half of 2023.
Among single stocks, Metro Bank gained 1 per cent ater the lender posted a smaller annual loss, supported by its cost-cuting efforts and as ouflows stabilised towards the end of the year ater an eleventh-hour capital injection.
Balfour Beaty surged about 9 per cent, on track for its biggest one-day gain since August 2022, ater the infrastructure firm reported a beter-than-expected full-year revenue.