EconomyMay 12 2023

UK economy expands 0.1% in Q1

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UK economy expands 0.1% in Q1
Hollie Adams/Bloomberg

The UK economy expanded 0.1 per cent in the first quarter this year, driven by growth in the services and construction sectors.

Gross domestic product in the first three months of the year was also buoyed by a 0.5 per cent growth in manufacturing and a 0.1 per cent growth in the production sector, according to the Office for National Statistics.

However, gross domestic product fell 0.3 per cent in March, following no growth in February and 0.5 per cent growth in January.

The rise in GDP means the UK is not currently in a recession, which is defined as two consecutive quarters of economic contraction.

Yesterday (May 11), the Bank of England said although it expects the economy to stagnate in the first half of this year, it no longer thinks the UK will enter into a recession.

Chancellor of the exchequer, Jeremy Hunt said: “It's good news that the economy is growing but to reach the government's growth priority we need to stay focused on competitive taxes, labour supply and productivity.

"The BoE governor confirmed yesterday that the Budget has made an important start but we will keep going until the job is done and we have the high wage, high growth economy we need."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said while the surprise change in the UK’s economic growth is “certainly welcome”, there are still real hurdles to overcome.

“There’s no sugar coating the fact that growth remains very sluggish – the UK is hardly on course to shoot the lights out this year. 

"The main issue is that inflation is set to fall more slowly than expected, partly because of the unprecedented rise in supermarket prices,” she said.

The BoE raised interest rates to their highest level since 2008 yesterday, after inflation eased slightly in March to 10.1 per cent.

Marcus Brookes, chief investment officer at Quilter Investors said: “Ultimately, the Bank of England has to weigh the delayed impact of prior rate rises which will not be hitting yet. 

“It continues with the tricky balancing act of understanding how much more it needs to do to reduce inflation without tipping the economy nearer a recession, given the well-known lags of monetary policy.”