London: In a major boost to British Prime Minister Rishi Sunak's prospects ahead of the general election, the United Kingdom has officially exited the shallow recession it entered last year with stronger-than-expected growth in the first quarter of March, its fastest in the last three years. The Office for National Statistics (ONS) said gross domestic product expanded by 0.6 per cent in the three months to March, the highest since 2021's fourth quarter when it rose by 1.5 per cent.
The first-quarter growth exceeded all forecasts in a Reuters poll of 39 economists which had pointed to a 0.4 per cent expansion of gross domestic product in the January-to-March period, after GDP shrank by 0.3 per cent in the final quarter of 2023. The Bank of England, which held interest rates at a 16-year high on Thursday, forecast quarterly growth of 0.4 per cent for the first quarter of this year and a smaller 0.2 per cent rise for the second quarter.
The data shows strength in retail, public transport, haulage and health - partly due to fewer public-sector strikes. Car manufacturing also performed well, offset by continued weakness in construction, the ONS said. Friday's data was welcomed by Sunak who said the economy had "turned a corner", although the opposition Labour accused the PM of being out of touch.
"We know things are still tough for many people, but the plan is working, and we must stick to it,' said Sunak in a post on X. British Finance Minister Jeremy Hunt said that the growth figures show that the UK economy is returning to full health for the first time since the COVID-19 pandemic. However, the opposition has rejected these claims.
"This is no time for Conservative ministers to be doing a victory lap and telling the British people that they have never had it so good," said Labour's Rachel Reeves, who hopes to succeed Hunt as finance minister.
What does the data indicate?
Apart from strength in retail, public transport and health sectors, the UK also performed well in car manufacturing. Friday's data also showed that GDP in March was 0.7 per cent higher than a year earlier, and above all economists' expectations of a 0.3 per cent rise. However, Britain has still had one of the slowest recoveries from the effects of the coronavirus pandemic.
According to BBC, there was evidence from credit and debit card transactions that consumers have been treating themselves to clothing and home furnishings. While the overall economy is growing again, many people might not be feeling any better off due to inflation and a cost-of-living crisis.
"Despite the better near-term outlook, the improvement in GDP growth looks likely to be constrained by the ongoing weakness in productivity growth as well as reduced scope to increase employment levels," Yael Selfin, chief economist at KPMG UK, said.
English Sterling rises after economic performance
After the improvement in the economic performance, the English Sterling rose 0.1 per cent at $1.2537, having traded at $1.2516 before the figures were released. The pound is slightly higher so far in May but has fallen 1.5 per cent this year as the dollar has risen on the back of a strong US economy.
The euro slipped 0.1 per cent against the pound to 86.04 pence. Inflation has slowed to 3.2 per cent in March from a peak of 11.1 per cent in October 2022. The next data is due on May 22. "Today's figures may give the BoE (Bank of England) some pause for thought, but the focus will remain on key upcoming data on inflation and wage growth," said Henry Cook, senior economist at lender MUFG.
Sterling rose 0.2 per cent on Thursday after US data showed that weekly jobless claims rose more than expected last week, adding to signs that the country's labour market was weakening and the Federal Reserve was likely to cut rates this year. However, the dollar remains up around 3.9 per cent in 2024 thanks to strong US growth. The dollar index, which tracks the currency against six peers, was flat at 105.23.
UK general elections
The economy has been a major political issue in the United Kingdom ahead of the general elections, and the recent data will bring much-needed respite for Sunak's Conservative Party, which polls show is heading to a big defeat against the opposition Labour Party. Things for the ruling party are not going well, as two MPs have defected to Labour on the back of bruising local election results.
While Labour politician Sadiq Khan's re-election as London mayor was widely expected, Labour also snatched a surprise, narrow victory in the central West Midlands region that is home to Britain's second-largest city of Birmingham. These Labour victories were expected to fuel fresh calls for Sunak to step down.
Opinion polls predicted that Labour will win the next national election, propelling Keir Starmer to power and ending 14 years of Conservative government in Britain. Sunak has said he intends to call a vote in the second half of the year. The British Indian leader had been counting on getting an electoral boost from recent announcements on defence spending and the progress of his divisive plan to send asylum seekers to Rwanda.
(with inputs from Reuters)
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