The UK economy grew in the first month of 2024, boosting hopes that the UK’s recession may be short-lived.
Figures from the Office for National Statistics show the UK rebounded in January with monthly GDP estimated to have risen by 0.2%, following a fall of 0.1% in December 2023.
The return to growth was largely boosted by services output, which grew by 0.2% in January, as well as a 1.1% increase in construction output.
The figures have led to hope that the UK is on course to soon emerge from the recession it entered in the second half of 2023.
Lindsay James, investment strategist at Quilter Investors, said: “While the 0.2% uptick represents just one month of data, after a better star to the year for the services and construction sectors, it could represent the start of a slightly more positive period for the UK given some of the challenges facing the economy are beginning to ease.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The UK economy snapped back to growth in January, adding fuel to the fire of speculation that the recession will indeed be super-short and ultra-mild. The latest snapshot showed that GDP was estimated to have come in at 0.2%, and while the economy is hardly shooting the lights out in terms of growth, there will be relief that light has emerged at the end of a difficult tunnel for many companies.”
However, experts warned that recovery was fragile and despite the return to growth, there was still a modest 0.1% contraction for the three months from November to January. The spotlight is now likely to fall upon the Bank of England’s interest rate decision, following 14 hikes which saw rates hit a 15 year high of 5.25%.
James said: “Inflation is expected to fall in the coming months, due in part to a lower energy price cap which could help alleviate the pressure on UK households and support the recovery of the consumer-driven economy. With this in mind, alongside the GDP figure, the UK inflation print next week will be closely watched by the Bank of England ahead of its interest rate decision the following day.
“For now, economic conditions remain relatively tough and GDP in January was still 0.3% lower than the same month a year ago. This therefore leaves the Bank of England under pressure to soon play its part in driving economic growth by cutting interest rates. This slight uptick in monthly GDP does little to reduce that pressure, but we can expect it to stand firm for a while longer yet.”
Danni Hewson, head of financial analysis at AJ Bell, commented that the 0.2% is “hardly a number to get excited about, it’s just a continuation of the trend that we’ve seen over the past couple of years. An economy bumping along the bottom, flatlining and stagnating.
“Psychologically shedding the label of recession is important because it helps foster confidence. But the biggest shot of adrenaline is likely to come once the Bank of England finally delivers the much-anticipated interest rate cut that markets are expecting in the summer. Confidence is crucial. It gets builders building, makers making and sellers selling. And those green shoots are visible, they just need a bit of fair weather to bed in.”
Tom Stevenson, investment director at Fidelity International, believes the Bank of England will sit tight during the first half of the year as it waits for a clearer picture of where growth and inflation are heading.
“The recovery from the shallow recession during the second half of 2023 does, however, build on the more positive tone from the Office for Budget Responsibility which last week raised its forecasts for growth to 0.8% for 2024 and 1.9% in 2025.
“The improving outlook for the UK economy is likely to lead to a positive shift in sentiment towards the UK stock market which has fallen behind international peers during the sharp recovery from last autumn’s low point,” he said.
Meanwhile, Abhi Chatterjee, chief investment strategist at Dynamic Planner, said policies will need to be revisited and ideas tested as the government approaches a general election, with a view to encouraging growth through investment, in skills and in infrastructure.
Chatterjee said: “While election years are often characterised by short-termism, our leaders have to realise that growth and innovation are the only insurance that we have against irrelevance, and innovation happens over time through long term investment. As Keynes once said, it would be foolish not to contemplate the possibility of far greater progress still.”
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