The prospect of the UK’s economic recovery gaining momentum received a boost with the release of new data indicating a 0.2% growth in the economy during January 2024.
The Office for National Statistics revealed that this GDP growth was primarily driven by expansions in the service and construction sectors. This marked the second increase in national output in the past seven months.
The surge in spending, both in physical stores and online, with a notable 3.4% increase, notably contributed to the 0.2% growth in services during January, while construction saw a rise of 1.1%. However, production, including manufacturing, experienced a contraction of 0.2%.
Looking at the broader picture, GDP over the three months leading to January was slightly lower by 0.1% compared to the three months preceding October 2023 and was down by 0.2% compared to the three months ending in January 2023.
Liz McKeown, the ONS director of economic statistics, said: “The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year. These were partially offset by falls in TV and film production, lawyers, and the often-erratic pharmaceutical industry.”
She added, “Over the last three months as a whole, the economy contracted slightly.”
Anticipation was high in financial markets for an uptick in economic activity following the slight contraction of 0.1% in December, with economists forecasting a consensus 0.2% increase.
Despite the UK still grappling with a shallow recession due to output declines in the third and fourth quarters of 2023, the news of a modest rebound in growth brought a sense of relief to the government.
Growth Expected In Coming Months
Chancellor Jeremy Hunt, speaking in last week’s budget, expressed optimism, noting that the economy had begun to turn a corner.
He highlighted a challenging period characterized by actions taken by the Bank of England to address high inflation, which had inadvertently slowed growth.
Responding to the January GDP figures, Hunt said: “While the last few years have been tough, today’s numbers show we are making progress in growing the economy – part of which makes it possible to bring down national insurance contributions by £900 this coming year. But if we want the rate of growth to pick up more we need to make work pay which means ending the unfairness of taxing work twice.”
Rachel Reeves, Labour’s shadow chancellor, stated, “After 14 years of economic decline under the Conservatives, Britain is worse off. Rishi Sunak’s claims that his plan is working are already in tatters after Britain was hit by recession last year.”
During the latter half of 2023, the UK’s economic landscape was characterized by growth occurring only once, specifically a 0.2% increase in November. Conversely, each subsequent month witnessed either a decline or a stagnation in GDP.
Yael Selfin, Chief Economist at KPMG UK, provided insight into the forward-looking indicators, suggesting a potential strengthening of momentum in February 2024.
This supported the notion that the UK might have navigated a brief and relatively mild recession, indicating a positive trajectory in the economic landscape.
“Although economic performance has somewhat improved, the outlook remains relatively gloomy. Economic growth is not expected to materially pick up this year with demand impaired by the lingering impact of high interest rates. Meanwhile, on the supply side, the sluggish outlook for business investment and weaker public sector investment will compound weakness in productivity and constrain long-term growth.”
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