The British economy continues to present a “mixed” outlook.
In the first three months of the year, economic growth was driven by the services sector, which expanded for the first time in a year, the statistics agency said. Transportation services, legal services and scientific research grew strongly, but services including hotels and restaurants fell slightly and the construction sector contracted sharply.
GDP per person grew 0.4 percent in the first quarter, after seven consecutive quarters of decline.
Still, Britain’s economic data “is incredibly contradictory,” said Tera Allas, director of research and economics at McKinsey’s Britain and Ireland office and a former civil service economist. Some sectors, such as professional services and technology, have done well, but others, such as hospitality, have struggled, she said.
The economic outlook for consumers is “even murkier,” Allas added. Sentiment is negative and by some measures retail sales are down. But consumer spending remains a key aspect of the country’s economic resilience. Household spending, adjusted for inflation, rose 0.2 percent, after two quarters of declines, the statistics agency said.
Part of that can be explained by the labor market. Even as interest rates are at their highest level in 16 years, investment slowdowns and business bankruptcies have increased, unemployment has risen only modestly, to 4.2 percent in February, up from recent lows in the 3.8 percent.
The medium-term outlook is bleak.
On Thursday, the National Institute for Economic and Social Research said it anticipated Friday’s economic data would show the recession was “in the rearview mirror,” but warned that the long-term outlook for the economy was sluggish. Economists at the institute forecast growth of around 1 percent annually in the medium term.
The Bank of England said the impact of higher interest rates and restricted public spending will weigh on the economy and forecast growth of 0.5 percent this year. Although authorities said rate cuts were on the way, they plan to take a cautious approach, suggesting rates will fall slowly.
The economy is in the spotlight ahead of the general election.
“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,” Chancellor of the Exchequer Jeremy Hunt said in a statement. on Friday. .
A general election is due to take place within the next eight months and the economy is among the top priorities, with both main political parties promising to boost growth. Rachel Reeves of the opposition Labor Party accused the ruling Conservative Party of “enlightening” the British people about the improving economy.
In a speech this week, Reeves said claims that the British economy had turned a corner “do not speak to the economic reality”, as many people tell him they are struggling to pay bills or high rent or mortgage payments.
The benefits of the recovery are being felt unevenly.
For many households, 2024 will also feel like emerging from a long-running cost of living crisis. Although prices remain higher than before the pandemic, and are expected to remain that way, there has been some relief in consumer budgets. Average incomes are rising faster than inflation, household energy bills are falling, and the government has cut some taxes. On average, living standards, as measured by household disposable income, will rise 6 percent this year from last year, the National Institute for Economic and Social Research said this week.
But the benefits are not shared among everyone. Households in the lowest income groups will see their standard of living fall further as they face a sharp rise in rents, the institute said.