UK exits recession with fastest growth in nearly three years

Advertisement

In the initial quarter of 2024, Britain experienced its most substantial economic growth in nearly three years, marking an end to the shallow recession that gripped the nation in the latter part of the preceding year. This resurgence in economic activity provided a timely boost to Prime Minister Rishi Sunak’s administration just ahead of an impending election.

According to the Office for National Statistics, gross domestic product (GDP) expanded by 0.6% in the first quarter, representing the strongest growth since the fourth quarter of 2021. Sunak hailed this data as a significant milestone, asserting that the economy had “turned a corner.” However, the opposition Labour Party, which maintains a considerable lead in opinion polls, criticized Sunak and Finance Minister Jeremy Hunt, accusing them of being disconnected from the realities faced by ordinary citizens.

Finance Minister Jeremy Hunt countered these criticisms, stating that the growth figures demonstrate the economy’s return to full health following the pandemic-induced challenges. Nonetheless, Labour remained skeptical of these claims, with Rachel Reeves, a prospective successor to Hunt, cautioning against premature celebration and emphasizing the ongoing economic struggles faced by many.

Advertisement

Despite Britain’s faster-than-expected economic growth compared to the euro zone and the United States, it continues to grapple with one of the slowest recoveries from the pandemic among major advanced economies. This slow rebound has been compounded by external factors such as the surge in European natural gas prices following Russia’s invasion of Ukraine in 2022.

Yael Selfin, chief economist at KPMG UK, highlighted concerns regarding the sustainability of the growth trajectory, citing persistently weak productivity growth and limited capacity to expand employment levels.

The unexpected robustness of first-quarter growth caught many economists by surprise, surpassing all forecasts. This positive performance prompted speculation about the Bank of England’s monetary policy stance, with suggestions that stronger GDP growth could delay anticipated rate cuts and potentially fuel inflationary pressures.

Notably, the sterling strengthened against the U.S. dollar following the release of the ONS figures, reflecting market optimism regarding Britain’s economic outlook.

Despite the overall growth, disparities in living standards persist, with GDP per capita experiencing marginal improvement after two years of stagnation. Gora Suri, economist at PwC, underscored the ongoing challenges in enhancing living standards and boosting productivity, indicating that households have seen limited meaningful improvement in recent years.