By D. Maan, Jadetimes News
UK Economy Exceeds Initial Growth Estimates for Early 2024
The UK economy grew by more than initially estimated in the first three months of 2024 as the country emerged from recession, according to revised official figures. The Office for National Statistics (ONS) reported that between January and March, the economy expanded by 0.7%. This figure is an upward revision from last month's initial estimate of 0.6% growth.
The strength of the economy has become a key issue in the general election campaign, following years of sluggish growth. Most economists, politicians, and businesses aim for steady GDP growth as it generally indicates higher consumer spending, job creation, increased tax revenues, and better wage increases for workers.
The original estimate for the first quarter's growth exceeded economist's expectations, driven by a strong performance in the services sector, which includes industries such as hairdressing, banking, and hospitality. However, while the growth in services was revised upwards, manufacturing growth was adjusted downwards due to more comprehensive data collection.
With the upward revision, the UK was the fastest growing economy among the G7 group of advanced economies in the first quarter of the year. Prime Minister and Conservative leader Rishi Sunak praised the revised figures, stating that his party has a "clear plan to deliver a more secure future for your family." In contrast, Labour criticized the Conservatives for "14 years of economic vandalism" that they claim has left people worse off. A Labour spokesperson promised that their government would grow the economy and make Britain more business friendly, aiming to increase disposable income for the public.
Sarah Olney, the Liberal Democrat Treasury spokesperson, noted that despite the positive revision, the figures offer "cold comfort" for families struggling with rising mortgage repayments, stealth taxes, and escalating food costs.
Consumer Spending Drives Faster UK GDP Growth in Early 2024
Paul Dales, chief UK economist at Capital Economics, attributed the faster GDP growth in early 2024 primarily to upward revisions in consumer spending. The Office for National Statistics (ONS) reported increased spending on recreation, culture, housing, and food. Despite rising expenses, household disposable incomes also saw an increase in early 2024, driven by wage gains for workers.
Dales noted that this led to a rise in household saving rates, which climbed from 10.2% at the end of last year to 11.1%, the highest level since mid 2021 when savings were elevated during the Covid pandemic. He suggested that the economic recovery's strength might benefit the incoming Prime Minister, stating, "Whoever is Prime Minister this time next week may benefit from the economic recovery being a bit stronger."
Danni Hewson, head of financial analysis at AJ Bell, emphasized that even minor improvements in UK GDP growth are significant. "It’s the tiniest sliver of improvement, but when it comes to UK GDP growth, every little really does help," Hewson remarked. She highlighted that economic growth is a key focus of party manifestos, with each party presenting different strategies to achieve it. A growing economy, she noted, creates wealth, increases disposable income, and boosts tax revenues for the Treasury.
UK Economic Recovery and Rising Costs Impact Households
Although the UK has emerged from the economic recession that began in late 2023, many households may still feel financially strained due to rising prices. Interest rates are at a 16 year high of 5.25%, increasing borrowing costs for mortgages and loans, though savers benefit from better returns.
The latest economic figures reveal no growth in April, attributed to particularly wet weather that discouraged shoppers and slowed construction. The Bank of England, responsible for setting interest rates, has suggested the possibility of rate cuts in August, which would mark the first reduction in over four years. However, many mortgage holders have already refinanced at higher costs, and around three million more households will face increased repayments over the next two years as fixed rate deals expire.
Sophie Lund Yates, lead equity analyst at Hargreaves Lansdown, noted that while stronger than expected growth may not facilitate a rapid decrease in interest rates, it does boost overall optimism. She emphasized that the UK's deep seated productivity issues are a more significant concern than the current interest rate outlook.