Official data released by the Office for National Statistics (ONS) has revealed that the UK’s exit from recession during the first quarter of 2024 was even stronger than initially reported. The updated estimate shows that gross domestic product (GDP) grew by 0.7% between January and March, surpassing the previously reported 0.6% growth.
The ONS had announced on May 10th that the economy had experienced growth for the first time since the second half of 2023, effectively ending the shallow recession. Economists had previously blamed the recession on the Bank of England’s interest rate hikes in an effort to combat inflation, which had reportedly stifled demand.
The latest data from the ONS also revealed that the services sector, which makes up nearly 80% of the economy, was solely responsible for the growth during the first quarter of the year. However, April saw zero growth due to poor weather conditions affecting construction and retail sales.
This data comes just before the upcoming general election on July 4th, with the economy and personal finances being top concerns for voters in the aftermath of the COVID pandemic and rising cost of living. The timing of the election has sparked debate over whether the Bank of England should cut interest rates, potentially making borrowing more affordable.
At its last policy meeting, the rate-setting committee voted 7-2 to maintain the current interest rate of 5.25%. However, the minutes of the meeting revealed ongoing concerns about wage growth and inflation within the services sector. The Bank is cautious about raising interest rates, as it could potentially lead to further inflation as wages continue to rise at a rate of 6%.
Despite the current gap in favor of consumers, with wage growth outpacing inflation, living standards have been impacted by the crises since 2020. According to the Resolution Foundation, real household disposable incomes were lower in early 2024 than they were in late 2019. The thinktank also reported that this parliament has seen weaker growth than all but two parliaments since 1910, despite a 2.4% growth over the past year. On average, individuals have seen a decrease of £120 per year in income since the last election.
These figures have become a focal point in the election campaign, as parties face criticism for lack of clarity regarding their tax and spending plans. They also add to the argument for a reduction in interest rates, which has been supported by critics of the Bank of England.
The Bank’s financial stability report, released on Thursday, also acknowledged potential future pressures as it warned that three million mortgage holders have yet to experience the impact of higher interest rates on their repayments. Currently, financial markets and economists predict that the first interest rate cut could occur in August or September, unless there are any unexpected events. The possibility of a rate cut in June was mostly eliminated due to the election, as the Bank seeks to maintain its independence.