The contraction in the third-and fourth quarter of last year follows the slump in the first half of 2020 during Covid-19 lockdowns, and the contraction from spring 2008 to summer 2009 during the financial crisis.
James Smith, research director at the Resolution Foundation, says the recent frequency of recessions is a concern.
“The UK swiftly exited its latest recession in 2024 with the strongest economic growth since late 2021.
“But the wider backdrop is still worrying. Britain is falling into recession twice as frequently as it did in the second of the 20th century, and it remains a stagnation nation. These all-too regular shocks and slumps in between are reducing living standards and straining the public finances.
“The battle of ideas on how to change this record should be key during the election campaign.”
Derek Halpenny, head of research for global markets at financial group MitsubishiUFJ, says the BoE is inching toward a June rate cut
He told clients:
Most of the key guidance comments from [governor Andrew] Bailey and [deputy governor Ben] Broadbent in the press conference and again from Bailey in a Bloomberg TV interview after the press conference were clear in signalling rate cuts are coming.
Mostly notable was Bailey’s Comment that the monetary stance would “likely” need to be made less restrictive and “possibly more so than currently priced into market rates”. That comment really couldn’t be much clearer in signalling where the bias is shifting within the MPC and in our view strengthens the prospect of a June cut.
Moody’s Analytics: interest rates will constrain growth this year
High interest rates are likely to weigh on growth this year, even if we do get the two quarter-point cuts which markets expect.
Moody’s Analytics senior economist David Muir explains:
“With inflation moderating, the Bank of England is signalling that a rate cut is on the cards for the summer.
But first the Monetary Policy Committee needs further evidence that wage growth and price pressures within services are easing sufficiently. If that evidence builds quickly, a rate cut could come as soon as June, but we think August is the more likely date.
That said, even as rates are lowered, they will remain a constraint on the pace of economic growth through this year.”
Chancellor Jeremy Hunt is arguing that the UK’s GDP growth shows that the Government’s decisions are paying off.
He told Sky News this morning:
“We’re seeing that inflation is falling faster and I think people recognise it has been a very, very challenging period but they don’t vote for Conservative governments for us to do popular things, they trust is to do the right thing for the long-term benefit of the economy.”
He told Radio 4’s Today Programme that families who have been through “a really tough time” can see that the “very difficult decisions” taken to get the economy back on its feet after the pandemic and the energ shock” are working.
Hunt also claims that the UK’s longer-term prospects are strong – citing IMF forecasts for faster growth than France, Italy, Germany or Japan over the next six years.
Hunt also disputed that the Conservative’s reputation for economic competence had been crushed by Liz Truss’s mini-budget.
Hunt, who replaced Kwasi Kwarteng after the markets reacted very badly to the Truss administration’s package of unfunded tax cuts, concedes that mistakes were made, but that he corrected them within weeks.
Hunt says:
When interest rates and the prices people pay for mortgages have gone up all across the developed world following the energy shock caused by the invasion of Ukraine, it’s just wrong to attribute that to the mini-budget.
Hunt also predicted that mortgage rates are likely to start to fall, as inflation drops towards the UK’s 2% target – which could allow the Bank of England to lower interest rates.
Is Hunt right, though, that the mini-budget shouldn’t take the blame for the UK’s mortgage shock?
It is true that morgage rates have risen in the US, and in the eurozone, as central banks have tightened monetary policy by raising interest rates.
UK mortgage rates did fall in 2023, as the shock of the mini-budget subsided, but have been rising in recent weeks on concerns that interest rates might not be cut as soon as hoped (although the BoE suggested yesterday it could cut faster than expected).
So, even if the Truss shock has now dissipated, some unlucky mortage-holders who had to refinance their loan shortly after the mini-budget ended up paying much more…
Britain’s blue-chip share index has soared to another all-time high in early trading in London, amid relief that the UK’s recession is over.
The FTSE 100 index has jumped over the 8400 point mark for the first time, hitting a new intraday high of 8425 points – up 45 points this morning.
Mobile network operator Vodafone is the top riser, up 2%, after the UK cabinet office conditionally approved its merger with rival Three (although the competition authorities are yet to give their ruling).
Mining companies are also in the top risers, along with luxury goods maker Burberry (+1.7%), airline easyJet (+1.4%) and housebuilder Berkeley (+1.3%)
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says today’s growth report is lifting confidence:
The 0.6% growth registered in the first three months of the year was higher than forecast, with the green shoots seen in January and February flowering into a stronger growth spurt in March.
Confidence breeds more optimism, and with the economy showing signs of repairing and the FTSE 100 rallying higher, the glass half full sentiment is settling in. The blue-chip index has powered higher in early trade and set fresh records, after a sheen of positivity has descended on the UK.
The FTSE100 has been on a strong rally since mid-April, and is on track for its third weekly rise in a row. It’s gained almost 9% so far this year.
Hopes that the economy was strengthening, and that interest rates will be cut this year, have both pushed up share values in London in recent weeks.
However, the FTSE 100 isn’t really a barometer of the strength of the UK economy, rather it is an outward-looking index comprising largely of multinational conglomerates.
“After the FTSE 100 hit a record high for the fourth straight session on Thursday, the UK index has opened higher yet again and is potentially on track to close at another all-time high.
Shares in Anglo American are up on a report that Rio Tinto also considered a bid following BHP’s rejected offer. M&A speculation is helping to keep Anglo shares supported at the moment.
Richard Carter, head of fixed interest research at Quilter Cheviot, hopes that the UK’s economic stagnation will subside this year:
“With interest rate cuts seemingly pencilled in for the summer, the good news continues to flow for the UK as today’s data shows the UK is out of recession. The first quarter saw GDP grow by 0.6%, better than expected, as inflation has eased and the worst of the cost-of-living crisis is behind us.
The increase in GDP has primarily been driven by the UK’s strong services sector, which it has come to rely on in recent years to help push the economy forward.
“While growth remains fairly lacklustre compared to the likes of the US, this data shows this should be the year that economic stagnation subsides in the UK and the economy returns to consistent, if unspectacular, growth. It is the unspectacular nature of the growth, however, that is likely to be focus. While the very shallow and short recession appears over, there is a clamour for interest rate cuts to begin in order to stimulate growth and get business moving again. Markets await the first interest rate cut with bated breath, so it will be interesting to see the economic reaction once those rate cuts begin feeding through.
Yael Selfin, chief economist at KPMG UK, believes the worst is over, and that there will be continued growth for the rest of this year.
Falling inflation and real pay increases should help repair some of the damage to household incomes and support households’ consumption. Growth prospects have also improved in Europe, which could spur a recovery in exports.
“Despite the better near-term outlook, the improvement in GDP growth looks likely to be constrained by the ongoing weakness in productivity growth as well as reduced scope to increase employment levels. This could see annual GDP growth in the region of just 1% per year in the medium term.
“UK GDP grew by 0.4% in March, supported by a rise in services output which grew by 0.5%. Forward looking indicators point to further momentum in the coming months, consistent with our view that the worst is behind the UK economy.”
But… Suren Thiru, economics director of ICAEW, says the end of the recesion is a “rather hollow victory”, which could encourage the Bank of England to keep interest rates high for longer…
“These figures confirm an easy exit from the shallowest of recessions for the UK, as lower inflation helped return the economy to growth in the first quarter.
The UK’s escape from recession is a rather hollow victory because the big picture remains one of an economy struggling with stagnation, as poor productivity and high economic inactivity limits our growth potential.
The economy could struggle to kick on further in the second quarter as the boost to people’s incomes from weaker inflation is partly curtailed by renewed caution to spend and invest, amid higher unemployment and ongoing political uncertainty.
The strong exit from recession may inadvertently keep UK interest rates higher for longer by giving those policymakers still worried about underlying inflationary pressures enough comfort on economic conditions to continue putting off cutting rates.”