The UK economy has shown signs of growth as it bounced back from a 0.3% decline in March. The Office for National Statistics has revealed that gross domestic product rose by 0.2% in April as strong growth in the retail and creative sectors offset a slowdown in construction and manufacturing. These figures reveal that the economy is now 0.3% bigger than it was before the pandemic hit back in 2020. With this positive start to the second quarter, for now, the risk of recession decreases, but there is speculation that interest rates may continue to rise throughout the summer in a bid to control inflation.
Economics director at the Institute of Chartered Accountants in England and Wales, Suren Thiru, believes that “although GDP rebounded in April, this reflects more the reversal of the squeeze on service sector activity from poor weather in March than a meaningful improvement in our underlying growth trajectory”. This, alongside higher interest rates and an increasing tax burden, could mean that the economy “may continue to tread water for some time”.
Furthermore, the possibility of an increase in the Bank of England’s key lending rate to 6% by February is driving up mortgage rates and adding to pressure on household budgets. This, in turn, is impacting households and causing them to cut back on spending. The private housing sector was the main cause of a sharp 0.6% drop in construction as homeowners were “hesitant to request work” on their homes, and activity among estate agents also declined.
On the other hand, there were also some positive signs in the GDP figures. Consumer-facing industries grew in April, although they are still 8.7% below their pre-pandemic levels. Kitty Ussher, chief economist at the Institute of Directors, interprets the growth as encouraging for businesses in the consumer-facing sectors.
Manufacturing fell by 0.3% in April, with pharmaceuticals and computers being the main drags on the figures. In services, four days of junior doctor strikes caused a 0.9% fall in health and social work activities.
Despite the positive figures for April, economists are predicting only modest growth for the rest of the year. The latest Bloomberg survey predicts UK growth of just 0.2% for 2023, putting the country on course for the weakest performance among the Group of Seven countries, except for Germany.
The UK government has taken note of these figures, with Chancellor of the Exchequer, Jeremy Hunt, stating that “we are growing the economy, with the IMF saying that from 2025 we will grow faster than Germany, France, and Italy”. However, there is still a push to stick to their plan of halving inflation to protect family budgets, especially with a general election coming up in the next year or so.
Finally, separate monthly trade figures revealed that total imports of goods to the UK were at their lowest point since December 2021 at £47.6 billion ($60 billion), with an increase in exports from March leading to a shrinking goods trade deficit.