- Nick Edser
- Business reporter
Image source, Getty Images
Better-than-expected growth at the start of the year has helped the UK pull out of recession.
Official figures showed the economy grew 0.6 percent in January-March, the fastest pace in two years.
Britain fell into recession at the end of last year after experiencing two consecutive three-month contractions.
Chancellor Rishi Sunak said the economy was “turning around” but Labour said now was “not the time to celebrate victory”.
Bank of England Governor Andrew Bailey told the BBC on Thursday that the UK was recovering but it was not a strong recovery.
Interest rates are currently at a 16-year high, meaning savers are paying more for mortgages, loans and other borrowing, but they are also getting better returns.
Mortgage rates have been gradually rising in recent weeks after expectations of when the Bank of England will cut borrowing costs were postponed.
The central bank said on Thursday that inflation, a measure of price growth, would fall to near its target level in coming months, raising hopes of a rate cut in June, but the better-than-expected growth figures dampened those hopes.
Ruth Gregory, deputy chief UK economist at Capital Economics, said this “suggests that the Bank of England is in no rush to cut interest rates”.
She said the first rate cut would ultimately depend on upcoming employment and inflation figures.
According to the Office for National Statistics (ONS), growth at the start of the year was driven by the services sector – including hospitality, arts and leisure – and was likely also helped by the early celebration of Easter in March (last year it was in April).
A review of credit and debit card transactions showed evidence that consumers were purchasing clothing and furniture as treats for themselves.
ONS said car makers also had a strong quarter, although the construction sector remained “weak”.
But while the overall economy is growing again, many people may not feel like things are any better: Excluding the effects of inflation and population growth, per capita growth is still 0.7% slower than a year ago.
“It feels like things are starting to look up again.”
Ed Beardwell, who has run Rollquick Bike Shop in Bristol for the past 11 months, said his business was now “pretty much breaking even”.
He pointed to the cost of living as an issue: “People in Bristol are quite cost-sensitive. So many bikes are stolen that it keeps the price low that anyone is willing to pay.”
Due to sluggish sales caused by the recession, the company has shifted its focus to bicycle maintenance, which now accounts for 70% of sales.
Mr Beardwell told the BBC that after a disappointing winter, business appeared to be picking up.
“It certainly feels like things are starting to pick up again. If you look at the sales statistics, they're down from last year, but still better than they were at the end of last year.”
Although the economy contracted in the second half of last year, the downturn was the mildest in recent history.
The downturn was partly caused by rising store prices and interest rates making mortgage payments more expensive and causing people to spend less.
“The worst is over for the UK economy,” said Yael Serfin, chief economist at KPMG UK.
“We expect growth to continue for the rest of the year,” he added, saying lower inflation and rising wages would “repair some of the damage to household incomes and support household consumption.”
Election Issues
The size of an economy is measured by its gross domestic product (GDP), which reflects all the economic activity of a country's businesses, government, and people.
Most economists, politicians, and businesses want to see steadily growing GDP because it typically means people are spending more, new jobs are being created, more taxes are being paid, and workers' salaries are rising.
The debate over the strength of the economic recovery will be a central battleground in the general election campaign.
Chancellor of the Exchequer Jeremy Hunt said that after a difficult few years, “today's growth is evidence that our economy is returning to full health for the first time since the pandemic”.
“I think families who are going through really tough times are realising that the very difficult decisions we've taken to rebuild our economy after the pandemic and the energy shock are starting to pay off – we need to see it through,” he told the BBC's Today programme.
Labour's shadow chancellor Rachel Reeves, who earlier this week accused the Government of being delusional about the state of the economy, said now was “not the time for Conservative ministers to rejoice in their victory”.
“After 14 years of economic turmoil, workers' lives are still worse off,” Reeves added.
Liberal Democrat Treasury spokeswoman Sarah Olney said the figures were not cause for celebration.
