The U.K. economy’s rebound in the first quarter of 2024, as indicated by the initial estimate from the Office for National Statistics (ONS), represents a notable turnaround from the preceding quarters of contraction. Following two consecutive quarters of negative growth—a 0.3% decline in the fourth quarter of 2023 and a 0.1% drop in the third quarter—the economy’s expansion by 0.6% marks a welcome exit from a technical recession. This uptick exceeded the expectations of analysts polled by FactSet Research, who had anticipated a growth rate of 0.3%.
The encouraging growth figures were underpinned by robust performances across various sectors. Services, the largest component of the U.K. economy, expanded by 0.7%, contributing significantly to overall growth. Meanwhile, the production sector recorded a solid growth rate of 0.8%. However, the construction sector experienced a modest contraction of 0.9%, which somewhat tempered the overall growth trajectory.
Notably, the positive momentum extended into the month of March, with gross domestic product (GDP) for that month surging by 0.4%, surpassing economists’ forecasts of a 0.1% increase. This strong performance in March further bolstered the overall quarterly growth rate and underscored the resilience of the U.K. economy in the face of prevailing challenges.
Despite the encouraging signs of recovery, analysts remain cautious about the outlook. Alex Campbell, a senior consultant at Camarco, emphasized that while the quarter-on-quarter growth rate is the strongest since late 2021, the path to full economic recovery remains uncertain. Campbell pointed out that persistent challenges, such as elevated interest rates, are likely to exert pressure on both household and corporate spending, thereby potentially dampening the pace of recovery.
The financial markets reacted modestly to the positive economic data, with the pound registering slight gains against the dollar, reaching $1.2536. Similarly, the yield on the 10-year gilt stood at 4.143%, reflecting investor sentiment amid the evolving economic landscape.
Looking ahead, the Bank of England’s recent decision to maintain interest rates at 5.25% while signaling potential future rate cuts indicates a cautious approach to monetary policy. The central bank anticipates stronger economic growth in the near term but remains vigilant about managing inflation, which currently stands at 3.2%. As policymakers navigate these challenges, market participants will closely monitor economic indicators and policy decisions to assess the trajectory of recovery and inflationary pressures in the U.K. economy.