The U.K. economy showed signs of improvement as gross domestic product increased by 0.6% in the first quarter, surpassing economist expectations. In the second half of 2023, the U.K. experienced a shallow recession due to ongoing inflation concerns, with two consecutive quarters of negative growth indicating a technical recession.
During the period from January to March, the U.K.’s production sector expanded by 0.8%, while construction saw a decline of 0.9%. The economy saw a 0.4% growth in March and a 0.2% growth in February. The services sector, essential for the U.K.’s economy, grew for the first time since the first quarter of 2023, with a 0.7% increase driven mainly by the transport services industry.
U.K. Prime Minister Rishi Sunak welcomed the positive economic news, stating that “the economy has turned a corner.” However, Suren Thiru from ICAEW cautioned that while weaker inflation might have a positive impact, uncertainty ahead of general elections later in the year could lead to cautious spending habits and limit economic growth potential.
The Bank of England’s Monetary Policy Committee noted that inflation indicators remain high and voted to keep the main interest rate at 5.25%. The central bank expects headline inflation to be close to 2% in the near-term, but anticipates a rise later in the year as the impact of lower energy prices diminishes.