The United Kingdom’s economy has experienced a significant upswing, growing by 0.6% in the first three months of 2024. This surge marks the highest growth rate since the fourth quarter of 2021 when the economy expanded by 1.5%. The Office for National Statistics (ONS) reported that this growth has effectively ended the shallow recession that began in the second half of 2023.
Prime Minister Rishi Sunak has hailed the economic growth as a sign that the economy is “turning a corner.” However, the opposition Labour Party has accused Sunak and Chancellor Jeremy Hunt of being out of touch with the struggles faced by ordinary people. Labour’s Rachel Reeves, who hopes to succeed Hunt as Chancellor, stated that “this is no time for Conservative ministers to be doing a victory lap.”
Compared to other major advanced economies, the UK has faced a slower recovery from the effects of the COVID-19 pandemic. This has been compounded by the surge in European gas prices following Russia’s invasion of Ukraine in 2022. At the end of the first quarter of 2024, the UK economy remains 1.7% smaller than its pre-pandemic level in late 2019, with only Germany faring worse among the G7 nations.
Yael Selfin, chief economist at KPMG UK, cautions that despite the positive outlook, ongoing weakness in productivity growth and reduced scope for employment growth may limit the improvement in GDP growth.
The first-quarter growth exceeded all forecasts, with economists predicting a 0.4% expansion. This positive surprise may prompt the Bank of England (BoE) to reconsider its interest rate policy. The BoE had previously forecast a more modest 0.4% growth for the first quarter and a 0.2% rise for the second quarter. The stronger GDP growth could delay the BoE’s plans to cut rates, potentially stoking inflationary pressures.
On a monthly basis, the economy grew by 0.4% in March, exceeding the 0.1% growth forecast by economists. This growth was driven by strength in retail, public transport, haulage, and health sectors, partly due to fewer public-sector strikes. Car manufacturing also contributed positively, although construction remained weak.
Despite the headline growth figures, GDP per head rose for the first time in two years in the first quarter, up 0.4%, it was still 0.7% lower than the previous year. This highlights the ongoing squeeze on living standards and the UK’s ongoing challenges in boosting productivity. Gora Suri, an economist at PwC, notes that “in per capita terms, UK households have seen little meaningful improvement in living standards in the last two years.”
