The UK economy grew by 0.6% in the three months to March, driven by a stronger performance in the services sector, the latest figures from the Office for National Statistics have revealed.
Services output grew by 0.8% against an expectation of 0.6%, while manufacturing output also contributed positively following five consecutive three-monthly falls.
In March alone, the UK economy grew by 0.3%, beating analysts’ expectations and adding to the 0.4% growth seen in February. Services and construction output both grew by 0.3% and 1.5% respectively, although this growth was partially offset by a 0.2% fall in production.
Despite the better-than-expected data, industry commentators warned that the outlook remains precarious amid geopolitical volatility and domestic political uncertainty.
Lindsay James, investment strategist at Quilter, said: “Expectations have shifted significantly since the outbreak of war and this resilience may start to be seriously tested. The IMF has cut its UK growth forecast from 1.3% to 0.8%, and the longer the Strait of Hormuz remains closed, the greater the risk that further downgrades to global growth follow.
“With global growth already revised down from 3.3% to 3.1%, the UK is unlikely to be sheltered from the fallout, particularly as an energy importer.
“For the Government, this is a difficult backdrop. A decent first-quarter figure may provide some political breathing space, but higher energy costs and rising government bond yields all point to a more challenging few months ahead.
“For investors, the concern is that a fragile domestic recovery is now meeting a much less forgiving global backdrop, at the same time as political risk is again being priced into UK assets.”
Luke Bartholomew, deputy chief economist at Aberdeen Investments, commented: “While GDP growth was actually pretty solid over Q1, it is hard to see this mattering very much to markets given how much things have moved on since then in both international and domestic politics.
“Higher energy prices will weigh on growth, stunting any recovery that might otherwise have been occurring. And ongoing political uncertainty is likely to weigh on investment given the possibility of a significant change in fiscal policy. So the risk of a recession later this year is elevated, but for now the key driver of the gilt market is likely to be political developments rather than economic data.”
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