UK GDP rose by 0.6% in the first quarter of the year, exceeding the Bank of England’s 0.4% expectations and indicating the end of the short-lived technical recession that gripped the country at the close of 2023.
This figure marks the UK's strongest quarterly GDP growth since before the pandemic and is also the first time in nearly three years that UK GDP has outpaced both the US and the Eurozone.
The service and production sectors rose 0.7% and 0.8% respectively in the first quarter of the year, spearheading the economic growth and offsetting the decline in construction.
As such, today’s GDP figures coupled with yesterday’s inflation numbers suggest the UK economy is turning a corner.
However, David McCreadie, CEO of Secure Trust Bank, stressed that growth forecasts anticipate the economy to plateau.
He added: “Attention now shifts to the Bank of England, given the sustained pressure on households and businesses stemming from elevated interest rates. A rate cut would provide an added impetus to the economy by reducing borrowing costs for businesses.”
However, Charles Hepworth, investment director at GAM Investments countered that the Bank of England may be less inclined to cut rates into an economy that is growing faster than expected. He explained that both inflation and wage growth dynamics will need to abate to make a June rate cut a “distinct likelihood”.
Danni Hewson, head of financial analysis at AJ Bell, added that although the figures are encouraging, the cut to National Insurance and the increase in the national minimum wage which took place in April have yet to come through to consumer spending and their impact remains to be seen.
She warned: “Those green shoots we’ve heard so much about since the start of the year have sprouted nicely, but it will only take one spring storm to damage the burgeoning flowers.”
Meanwhile, the FTSE 100 hit new all-time highs this morning, although it might not have much to do with domestic macro-economic factors.
Russ Mould, investment director at AJ Bell, concluded: “Given its international horizons, this has little to do with the UK’s better-than-expected GDP growth and is largely being driven by strength in the resources space where higher metals prices and the promise of M&A are helping to stoke share prices.
“The next key test of the index’s new-found vim and vigour will likely come next week in the form of US inflation figures.”