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Our views 10 May 2024

UK economy bouncing out of recession

5 min read

The UK GDP rose 0.6% quarter-on-quarter in the first quarter (consensus: 0.4% quarter-on-quarter), which was stronger than expected, and comes after the second half of 2023’s modest technical recession. That’s stronger growth than in the US… for the first quarter at least.

Looking through the components, there were upward surprises in fixed investment. The biggest contributor to first quarter GDP growth though was net trade, boosted by weak imports – potentially a more negative sign for activity in the second quarter. Consumer spending only rose 0.2% quarter-on-quarter.

Looking at the monthly data, GDP rose a stronger than expected 0.4% month-on-month in March and February was revised up a touch too (to 0.2%). Services was the largest contributor to growth. A number of subsectors contributed to the growth in services, though not all and human health/social work was the largest positive contributor (just).

Altogether, this was a good set of data, albeit with a few weak spots. Combined though with the relatively solid PMI business survey indicators of late, the economy looks to have good momentum going into/through the second quarter so far as well. That follows a period of very flat GDP, followed by modest recession though.

Supports a lack of urgency for rate cuts: Stronger than expected GDP growth doesn’t necessarily complicate things for the Bank of England. They continue to emphasise that their focus is inflation persistence and specifically labour market, wage and services inflation data. Stronger GDP growth raises upside risk to these indicators if accompanied by a tighter labour market and more willingness from companies to pass on price increases. However, on the latter, the consumer spending story behind the first quarter’s figures doesn’t look strong and on the former, the Bank think that there has been labour hoarding by some firms over the last year. That implies that some increase in activity may be met by existing workers rather than tightening the labour market further. However, it is a data point that suggests the Bank don’t need to be in any hurry to cut rates here.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.