UK exits recession as economy grows

The UK has escaped recession after the economy grew at the start of the year, according to official figures.

The economy grew by a better-than-expected 0.6% between January and March, the Office for National Statistics (ONS) said.

A recession, which is defined as two consecutive three-month periods where the economy contracts, was declared in February.

Liz McKeown, director of economic statistics at the ONS, said: “There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well.”

She added that car manufacturers also had a good quarter.

Services output was up by an estimated 0.7%, while production output grew 0.8%. Meanwhile, construction was down 0.9%.

Chancellor Jeremy Hunt said: "There is no doubt it has been a difficult few years, but today's growth figures are proof that the economy is returning to full health for the first time since the pandemic.

"We're growing this year and have the best outlook among European G7 countries over the next six years, with wages growing faster than inflation, energy prices falling and tax cuts worth £900 to the average worker hitting bank accounts."

On a monthly basis, GDP rose by 0.4% in March, the ONS reported, beating City forecasts for 0.1% growth.

Read more: Bank of England holds interest rates but hints at summer cut

Although most of the economy grew in the last quarter, there are some warning lights in the construction sector. Construction output fell by 0.9% in January-March, for the second quarter in a row.

The latest figures come after the Bank of England held interest rates at 5.25% on Thursday. Governor Andrew Bailey, indicated that interest rates will need to be cut in the UK, possibly at a faster pace than markets anticipate.

Prime minister Rishi Sunak said the GDP figures showed that the economy had "turned a corner". He added: "We know things are still tough for many people, but the plan is working, and we must stick to it."

GDP growth figures for February were also revised upwards by the ONS, from 0.1% to 0.2%.

Nicholas Hyett, investment manager at Wealth Club, said: “An upgrade to February's growth estimate and strong performance in March means the 2023 recession is rapidly receding in the rear view mirror - ending almost as soon as it had started.

"Not only is the UK back in the black, but the economy is growing faster than expected. Perhaps most reassuring is the broad base of growth – with positive developments across everything from retail to manufacturing."

Read more: What is a technical recession and what does it mean for me?

The UK data compares to the eurozone's 0.3% growth recorded for the first quarter, with the US coming in at 0.4%.

Yael Selfin, chief economist at KPMG UK, said the worst is over, and that there will be continued growth for the rest of this year.

She commented: "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.”

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