UK economy exits recession ahead of election

LONDON

Britain exited recession with stronger-than-expected growth in the first quarter of 2024, official data showed Friday, in a boost to embattled Prime Minister Rishi Sunak ahead of this year's election.

Gross domestic product expanded by 0.6 percent in the first three months of this year, the Office for National Statistics (ONS) said in a statement, beating market expectations of 0.4 percent.

The economy had suffered two successive quarters of contraction in the second half of last year, meeting the technical definition of a recession on the back of elevated inflation and a cost-of-living crisis.

Sunak, whose governing Conservatives are trailing the main opposition Labour Party ahead of a general election, has made economic growth one of his top priorities.

"There is no doubt it has been a difficult few years, but today's growth figures are proof that the economy is returning to full health for the first time since the pandemic," said finance minister Jeremy Hunt.

"We're growing this year and have the best outlook among European G7 countries over the next six years," he added.

Friday's bright news came one day after the Bank of England kept its main interest rate at a 16-year high, but hinted at a cut over the summer as U.K. inflation cools further — and forecast emergence from recession.

"After two quarters of contraction, the U.K. economy returned to positive growth in the first three months of this year," said ONS director of economic statistics Liz McKeown.

"There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well.

"Car manufacturers also had a good quarter. These were only a little offset by another weak quarter for construction."

GDP had shrunk by 0.3 percent in the fourth quarter of 2023 after contracting by 0.1 percent in the prior three months.

The Bank of England on Thursday left borrowing costs at 5.25 percent, the highest level since 2008, which hurts borrowers but boosts savers.

"We need to see more evidence that inflation will stay low before we can cut interest rates," said BoE governor Andrew Bailey.

Don't cut too soon

Signalling that a rate cut was on the horizon, two members of the bank's nine-strong Monetary Policy Committee (MPC) voted at the May meeting for interest rates to be cut by 0.25 percentage points.

The BoE maintained borrowing costs for a sixth meeting in a row, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.

Hunt urged the BoE to refrain from cutting rates too soon, saying he would "much rather" policymakers "wait until they are absolutely sure inflation is on a downward trajectory than rush into a decision that they had to reverse at a later stage".

UK annual inflation fell less than expected in March — the last official reading — to 3.2 percent.

This is well down compared with late 2022, when the rate reached a four-decade high above 11 percent as energy and food prices soared following Russia's invasion of Ukraine.