UK economy shrinks in March but still grows in Q1 – business live

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Chancellor Jeremy Hunt has responded to today’s GDP report, saying:

“It’s good news that the economy is growing but to reach the government’s growth priority we need to stay focused on competitive taxes, labour supply and productivity.”The Bank of England Governor confirmed yesterday that the Budget has made an important start but we will keep going until the job is done and we have the high wage, high growth economy we need.”

Yesterday, the BoE said that the fiscal support in Hunt’s Spring Budget had helped to strengthen the economic outlook.

Hunt doesn’t mention, though, that the economy stalled in February, and contracted unexpectedly in March after a strong January.

It’s also not immediately clear how a ‘high wage, high growth’ economy will be achieved while the government is refusing to accept public sector pay demands, leading to strikes which are hitting growth.

The UK economy was also hit by awful weather in March.

March was “exceptionally wet”, the ONS says – indeed, the sixth wettest March since 1836.

This hit retail sales in March, as wet weather kept people off the high street, and may also have hit output for other industries.

January’s GDP report has been revised higher, to show the economy grew by 0.5% during that month, up from 0.4%.

But February remained in stagnation, with no growth, followed by the 0.3% drop in activity in March.

On a quarterly basis, the economy was still 0.5% smaller than its pre-coronavirus (COVID-19) level set in the final quarter of 2019.

Today’s GDP report confirms that the UK economy has avoided falling into recession last winter, having posted modest growth over the last six months.

The 0.1% growth estimated in January-March this morning follows 0.1% growth in the final quarter of 2022.

The economy did contract, by 0.1%, in July-September.

But to be a technical recession, the economy would need to have shrunk by two quarters in a row.

And, the good news today is that it didn’t, despite the heavy pressures on households and businesses from rising prices and borrowing costs.

Industrial action also hit growth in the last quarter, with public servants striking as they sought pay rises to match the UK’s highest inflation in decades.

The ONS says:

There was anecdotal evidence, reported on monthly business survey returns, to suggest that industrial action in March 2023 had a notable impact on different industries of varying degrees.

These included the health sector (junior doctors), the civil service, the education sector (teachers and university lecturers) and the rail network. This is further supported by the Business Insights and Conditions Survey (BICS), which stated 1 in 10 businesses (9%) were directly or indirectly affected by industrial action in March 2023.

ONS director of economic statistics Darren Morgan says weak car sales pulled the economy back in March.

“Despite the UK economy contracting in March, GDP grew a little over the first quarter as a whole.”The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.”These falls were partially offset by a strong month for manufacturing as well as growth in gas production and distribution and also in construction.“Across the quarter as a whole growth was driven by IT and construction, partially offset by falls in health, education and public administration, with these sectors affected by strikes.”

Newsflash: The UK economy shrank in March, but still achieved growth in the first quarter of this year.

New data from the Office for National Statistics shows that UK GDP fell by 0.3% in March, worse than economists expected.

That follows stagnation in February.

The contraction in March was driven by a 0.5% fall in services sector activity.

Production output grew by 0.7% and construction by 0.2%.

Output in consumer facing services fell by 0.8% in March 2023, after unrevised growth of 0.4% in February.

Looking at the broader picture, though, GDP grew by 0.1% in the three months to March 2023, confirming that the UK avoided falling into recession last winter.

The UK economy is expected to “grow modestly in Q1”, predicts Michael Hewson of CMC Markets.

That would follow a “surprise upgrade” to growth data for Q4 2022 which showed the UK economy eke out growth of 0.1%, and “confounding the expectation of a technical recession”, he adds:

The first 3 months of this year have seen the economy perform much better than even the most optimistic of forecasts, leaving lots of egg on the faces of those who were predicting all manner of disasters during the twilight weeks of last year.

The OBR, IMF, OECD, and Bank of England have all been proved to be unduly pessimistic in their assessments of the UK economy in recent months, particularly when it comes to growth.

The unexpected weakness in commodity prices, namely oil and gas, as well as the milder weather has certainly helped, while consumer spending has proven to be much more resilient.

Analysts at RBC Capital Markets predict the UK economy managed to grow, just, in the first quarter of this year.

They told clients this morning:

Strikes and industrial action have weighed on Q1 GDP, particularly in February and March.

Nonetheless, Q1 GDP growth is likely to be positive overall. Indicators of private sector activity and sentiment continue to improve, and while we expect the loss of output from the public sector to weigh on activity overall, we still expect positive March GDP growth of 0.1% m/m, which would leave quarterly GDP growth at 0.1% q/q.

Good morning. We’re about to learn how the UK economy performed in the first quarter of this year.

The first estimate of UK GDP in March, and for Q1 2023, is due at 7am BST, and will show if the country achieved economic growth in the face of the cost of living crisis, rising interest rates and strikes.

Economists are hoping we will see modest, positive growth in the first quarter of the year, with GDP forecast to have risen by 0.1% in the January-March period.

GDP in March itself could be flat, though.

That would follow a strong January, when the economy grew by 0.4%, and a weak February when there was no growth at all [tho this data could be revised at 7am too].

A few months ago, economists had feared the UK could be in recession by now. But the fall in energy prices has helped the economy to outperform those gloomy expectations.

Yesterday, the Bank of England admitted that economic activity has been less weak than it expected in February. It now forecasts that UK GDP will be flat over the first half of this year, although underlying output (excluding the estimated impact of strikes and an extra bank holiday) could rise by around 0.2% in both Q1 and Q2.

On its upward growth revision, BoE governor Andrew Bailey said:

“It’s a very big upward revision, but the level of growth is still very, it’s still weak, let’s be honest.”

February’s growth was held back by civil service and teachers’ strikes, which hit the services sector.

And industrial action is continuing today, with members of the drivers’ union Aslef striking for 24 hours across virtually all the big passenger operators in England.

Further strikes will be held on May 31 and June 3 – the day of the FA Cup final at Wembley.

Members of the Rail, Maritime and Transport union (RMT) will strike on Saturday – the day of the Eurovision Song Contest final in Liverpool.

7am BST: UK GDP report for March and Q1 2023

7am BST: UK trade report for March

9.30am BST: Hong Kong GDP report

3pm BST: University of Michigan index of US consumer sentiment