UK ‘bottom of G7 growth league table’ despite avoiding winter recession
Despite expanding slightly over the last two quarters, avoiding a winter recession, the UK is still “bottom of the G7 league table” for growth since the Covid-19 pandemic, economists say.
Today’s GDP report shows that the UK economy was still 0.5% smaller in the first quarter of this year than in the last quarter of 2019 – just before Covid-19 hit the global economy.
In contrast, France’s economy is 1.3% larger, and Germany is just 0.1% smaller than in Q1 2019.
The US economy has raced ahead, and is 5.3% bigger than its pre-Covid size. The US economy benefited from several large stimulus packages, and also didn’t suffer as much of a jump in energy prices as Europe.
Today's GDP data show 🇬🇧 is still the weakest performer in the G7 since late 2019, the last full quarter before the Covid pandemic.
But it's worth noting that 🇩🇪 isn't doing much better.
🇺🇸 is ahead of the pack by some margin. pic.twitter.com/8raWb9L2Ur— David Milliken (@david_milliken) May 12, 2023
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Today’s GDP data show 🇬🇧 is still the weakest performer in the G7 since late 2019, the last full quarter before the Covid pandemic.
But it’s worth noting that 🇩🇪 isn’t doing much better.
🇺🇸 is ahead of the pack by some margin. pic.twitter.com/8raWb9L2Ur— David Milliken (@david_milliken) May 12, 2023
This table, from this morning’s UK GDP report, shows the details:
As we covered earlier, the 0.1% growth in the UK in January-March beats Germany (no growth), but lags France, Italy and the US.
Samuel Tombs, economist at Pantheon Macroeconomics, says the UK is “still at the bottom of the G7 league table” since the pandemic.
Tombs told clients this morning:
The U.K. remains the only G7 country in which the main quarterly measure of GDP has not recovered to its pre-Covid peak yet; it still was 0.5% below its Q4 2019 level in Q1.
This chiefly reflects weakness in households’ real spending, which was 2.3% below its Q4 2019 level. But at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have faced a similarly enormous energy price shock.
Indeed, the U.K.’s quarter-on-quarter growth rate in Q1 matches the Eurozone’s 0.1% increase.
The TUC is concerned that the UK has been “flatlining” for more than a year.
TUC General Secretary Paul Nowak said:
Rishi Sunak still doesn’t have a plan to stimulate growth and get us out of this rut. And his ministers are making things worse by holding down pay while inflation is over 10%.
“Without pay growth, families are forced to cut back their spending, and business lose customers. That’s why a competent government would put pay growth at the heart of the UK’s economic plan.”
The UK economy has also suffered from weak business investment. It rose in the last quarter, but remains 1.4% below its pre-Covid levels.
NEW: @ONS data shows UK business investment rose by 0.7% in Q1 2023, outstripping the 0.1% rise in overall UK GDP & up from the 0.2% fall in Q4 2022.
But, business investment is still 1.4% below its pre-covid level vs GDP which is now 0.5% lower. pic.twitter.com/lwUmcSRBFK
— Suren Thiru (@Suren_Thiru) May 12, 2023
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NEW: @ONS data shows UK business investment rose by 0.7% in Q1 2023, outstripping the 0.1% rise in overall UK GDP & up from the 0.2% fall in Q4 2022.
But, business investment is still 1.4% below its pre-covid level vs GDP which is now 0.5% lower. pic.twitter.com/lwUmcSRBFK
— Suren Thiru (@Suren_Thiru) May 12, 2023
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The Communications Workers Union has welcomed Simon Thompson’s decision to step down as Royal Mail’s CEO (see earlier post).
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CWU General Secretary Dave Ward says Thompson is one of the key individuals responsible for the “financial crisis” that Royal Mail Group has created over the course of the last year.
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Criticising Thompson’s management style, Ward also calls for further change at the company, saying:
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“The CEO was also one of the key people responsible for the appalling mantra of ‘it’s our business to run’ – which saw the employer openly attack its own workforce on a relentless basis, including developing a culture of imposition and creating service quality and USO failures on a scale which threatens the future of the company.
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“However, we recognise that the CEO was only one of the senior leadership team responsible for the unacceptable actions and behaviours of managers across the UK throughout this dispute. Further change in Royal Mail Group’s leadership team is vital.
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“It is important that the next Royal Mail Group CEO is somebody who understands the only way to turn around the fortunes of the company is by taking the workforce with them.”
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Ward has also told a webcast that Thompson’s departure wasn’t a surprise, and that the outgoing CEO had been ‘sidelined’ by the company’s board during the negotiations that led to the new pay deal:
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LIVE: Simon Thompson gone – reaction and next steps https://t.co/DXJzCcsn7R
— The CWU (@CWUnews) May 12, 2023
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Speaking of interest rates…. Bank of England chief economist Huw Pill has said today that the UK central bank might have to do more to contain the risks from the surge in inflation.
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Pill told a BoE webinar that there was evidence of “a more favourable pattern in terms of the inflation outlook”.
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However, this progress could be interrupted in ways different to past trends “which means that there may be more work to do”, Pill warned.
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Pill was speaking a day after the BoE raised interest rates for a 12th meeting in a row, to a near-15 year high of 4.5%.
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After that rate rise was announced, the Bank’s governor Andrew Bailey rebuked Pill for his “choice of words” after the chief economist said in April that people ‘need to accept’ they are poorer following the jump in energy costs (see yesterday’s blog for the details).
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NIESR, the economic forecasting group, believes the UK economy could keep growing in the second quarter of this year.
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Following the 0.1% growth recorded in Q1 this morning, NIESR estimates the economy will grow by 0.2% in April-June.
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In April alone, GDP is expected to rise by 0.3%, recovering March’s slump.
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[In May, though, the extra bank holiday may hit activity.]
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⚠️OUT NOW: Our latest monthly #GDP Tracker suggests monthly GDP will bounce back strongly in April, likely driven by strong #services performance with the second quarter of this year set to see GDP #growth of 0.2% 📈📊
Read here in full ⬇️https://t.co/oiJdYBTYPS
— National Institute of Economic and Social Research (@NIESRorg) May 12, 2023
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Paula Bejarano Carbo, associate economist at NIESR, says
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“Today’s data suggest that GDP grew by 0.1 per cent in the first quarter of 2023 compared to the fourth quarter of 2022, in line with our forecast published in last month’s tracker.
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Encouragingly, the services, production, and construction sectors all saw quarter-on-quarter growth – a further sign that the economy as a whole is exhibiting more resilience than previously thought. Though monthly GDP fell by 0.3 per cent in March following no growth in February, high-frequency data suggest that monthly GDP will bounce back strongly in April, likely driven by strong services performance.
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It is worth bearing in mind, however, that monthly GDP remains only 0.1 per cent above its February 2020 level – what we are seeing at the start of this year is (welcome) low growth, rather than a much-needed ‘jump-start’.”
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Newsflash: Royal Mail boss Simon Thompson is to step down, ending a turbulent two-year stint at the helm of the postal operator.
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International Distributions Services, Royal Mail’s parent company, has just told the City that Thompson believes it is “the right time for the company to move forward under new leadership”, following the recent negotiators’ agreement between Royal Mail and the CWU union, over a pay deal.
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Thompson had been expected to step down this week, having been accused by unions of inflaming the bitter industrial dispute.
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IDS says it is in “advanced stages of appointing a new CEO”; Thompson has agreed to remain with the business until 31 October 2023 as part of the transition.
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Thompson’s credibility was put in question after a recent Commons select committee appearance, as my colleague Gwyn Topham explained on Monday:
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A potential end to the long industrial dispute was reached last month in a provisional agreement with the Communication Workers Union, which has called strikes on 18 days in the past year. Members are voting on a three-year pay deal worth 10% that would also bring in Sunday working, but which the CWU said had headed off the “Uberisation” of Royal Mail jobs.
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The union had accused the company’s management of “a complete lack of integrity” after changes to work practices that had not been agreed were imposed at offices across the country.
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Thompson was accused of “incompetence or cluelessness” by MPs on the business committee after appearing before them in January and being recalled over questions about his evidence. They called on the regulator, Ofcom, to investigate whether the company had broken legal service requirements.
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Sir Keir Starmer has said the latest economic growth figures were “nothing to celebrate” after UK gross domestic product (GDP) increased by 0.1% in the first quarter of this year.
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Speaking to broadcasters during a visit to the Crick Institute in central London, the Labour leader said:
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“This is nothing to celebrate and is yet more low growth on the back of 13 years of low growth.
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“I think the essential question many people today will be asking themselves is, ‘Do I feel any better off now than I did 13 years ago when this Government started?’
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“I think the resounding answer to that around the country will be, ‘No, I don’t’.”
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High inflation, and falling real wages, means that the current period of very weak economic growth will feel like a recession for many people.
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James Smith of Resolution Foundation explains why, in this Twitter thread:
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.@ONS GDP out for Q1 this morning and, despite weak data for March (-0.3% MoM), Q1 as a whole registered growth, albeit of just 0.1%. Clear that we're not out of the woods of the cost of living crisis yet with economy continuing to flatline. A short thread to follow…
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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The good news: growth of 0.1% in Q1 2023 is clearly not the recession that many had been fearing. And was even a bit stronger than yesterday's Bank of England forecast of flat GDP in Q1. pic.twitter.com/OWSaYF707k
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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Bad news: this is still very weak by historical standards and the economy flatlining will feel like a recession to many. Growth of just 0.2% over the past year is weaker than *quarterly* average growth before the pandemic! pic.twitter.com/0A29JIISNc
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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The picture is one of weak growth across major advanced economies in Q1 2023 with the UK is faring better than some… pic.twitter.com/ABChcM3xsW
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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…but if we zoom out and look at the post-pandemic period, the UK's relative decline is clear – on a quarterly basis UK GDP is still below its pre-pandemic level in Q4 2019. We are the only G7 country in this position. pic.twitter.com/qfP4H63zjp
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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Stepping back, this chart reminds you that the Bank of England told us yesterday we're in the midst of a period of stagnant growth – so looks likely that we're likely to get more disappointing GDP growth in the coming months… pic.twitter.com/YaJAaBPN0m
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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And stepping back, you can see the blight of weak growth in recent years with GDP now a whopping 7% below its pre-pandemic trend. Clearly the first priority is defeating high inflation, but addressing this terrible growth performance will be the challenge for the decade ahead. pic.twitter.com/Oq0wzFrCF1
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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Our economics editor, Larry Elliott, says it is still too soon to sound the all clear, let alone hang out the bunting, for the UK economy.
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He points out that the economy is still 0.5% smaller than it was in late 2019, the date of the last general election and the period immediately before the start of the Covid-19 pandemic.
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Larry explains:
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The UK economy has been going nowhere for the past year. After rebounding most of the way out of its pandemic trough by early last year, there has been virtually no movement. In three of the last four quarters – including the first three months of 2023 – there was growth of 0.1%, and in the other the economy contracted by 0.1%.
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This is unusual. Periods when the economy moves sideways are rare, especially ones that go for as long as a year. They tend to be followed either by recession or recovery, and while the signs are that it will be the latter, it is too soon to say for sure.
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On the upside, the economy continued to expand through what was always going to be a tough winter. A combination of double-digit inflation and widespread strikes represented two serious headwinds to activity, and even 0.1% growth is better than most forecasters were expecting.
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Despite expanding slightly over the last two quarters, avoiding a winter recession, the UK is still “bottom of the G7 league table” for growth since the Covid-19 pandemic, economists say.
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Today’s GDP report shows that the UK economy was still 0.5% smaller in the first quarter of this year than in the last quarter of 2019 – just before Covid-19 hit the global economy.
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In contrast, France’s economy is 1.3% larger, and Germany is just 0.1% smaller than in Q1 2019.
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The US economy has raced ahead, and is 5.3% bigger than its pre-Covid size. The US economy benefited from several large stimulus packages, and also didn’t suffer as much of a jump in energy prices as Europe.
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Today's GDP data show 🇬🇧 is still the weakest performer in the G7 since late 2019, the last full quarter before the Covid pandemic.
But it's worth noting that 🇩🇪 isn't doing much better.
🇺🇸 is ahead of the pack by some margin. pic.twitter.com/8raWb9L2Ur— David Milliken (@david_milliken) May 12, 2023
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This table, from this morning’s UK GDP report, shows the details:
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As we covered earlier, the 0.1% growth in the UK in January-March beats Germany (no growth), but lags France, Italy and the US.
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Samuel Tombs, economist at Pantheon Macroeconomics, says the UK is “still at the bottom of the G7 league table” since the pandemic.
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Tombs told clients this morning:
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\n
The U.K. remains the only G7 country in which the main quarterly measure of GDP has not recovered to its pre-Covid peak yet; it still was 0.5% below its Q4 2019 level in Q1.
\n
This chiefly reflects weakness in households’ real spending, which was 2.3% below its Q4 2019 level. But at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have faced a similarly enormous energy price shock.
\n
Indeed, the U.K.’s quarter-on-quarter growth rate in Q1 matches the Eurozone’s 0.1% increase.
\n
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The TUC is concerned that the UK has been “flatlining” for more than a year.
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TUC General Secretary Paul Nowak said:
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\n
Rishi Sunak still doesn’t have a plan to stimulate growth and get us out of this rut. And his ministers are making things worse by holding down pay while inflation is over 10%.
\n
“Without pay growth, families are forced to cut back their spending, and business lose customers. That’s why a competent government would put pay growth at the heart of the UK’s economic plan.”
\n
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The UK economy has also suffered from weak business investment. It rose in the last quarter, but remains 1.4% below its pre-Covid levels.
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NEW: @ONS data shows UK business investment rose by 0.7% in Q1 2023, outstripping the 0.1% rise in overall UK GDP & up from the 0.2% fall in Q4 2022.
But, business investment is still 1.4% below its pre-covid level vs GDP which is now 0.5% lower. pic.twitter.com/lwUmcSRBFK
— Suren Thiru (@Suren_Thiru) May 12, 2023
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Despite growing slightly in January-March, Britain’s economy remained 0.5% smaller than in the fourth quarter of 2019, shortly before the coronavirus pandemic.
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That’s a weaker rebound than any other major advanced economy, Reuters points out.
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Today's GDP data show 🇬🇧 is still the weakest performer in the G7 since late 2019, the last full quarter before the Covid pandemic.
But it's worth noting that 🇩🇪 isn't doing much better.
🇺🇸 is ahead of the pack by some margin. pic.twitter.com/8raWb9L2Ur— David Milliken (@david_milliken) May 12, 2023
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The UK economy shrank unexpectedly in March, by 0.3%, as the cost of living crisis and industrial action took a toll, my colleague Phillip Inman writes.
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However, the economy grew by 0.1% over the first quarter as a whole, mainly because of a strong January, while growth flatlined in February, according to the Office for National Statistics. It followed 0.1% growth in the final quarter of 2022.
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Darren Morgan, an ONS director of economic statistics, said:
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\n
“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.”
\n
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The Bank of England, which increased interest rates to 4.5% on Thursday, has forecast that the UK economy will stagnate this year – expecting growth of 0.25% – after tearing up a forecast last year that Britain was on course to suffer one of the longest recessions on record, stretching into 2024.
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More here:
","elementId":"744a5069-1431-469a-87ea-32a9186dd71b"},{"_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","url":"https://www.theguardian.com/business/2023/may/12/uk-economy-shrank-unexpectedly-in-march","text":"UK economy shrank unexpectedly by 0.3% in March","prefix":"Related: ","role":"thumbnail","elementId":"962af13e-f0ad-49cf-be93-c816700c5413"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1683878006000,"blockCreatedOnDisplay":"08.53 BST","blockLastUpdated":1683878301000,"blockLastUpdatedDisplay":"08.58 BST","blockFirstPublished":1683878301000,"blockFirstPublishedDisplay":"08.58 BST","blockFirstPublishedDisplayNoTimezone":"08.58","title":"Full story: UK economy shrank unexpectedly by 0.3% in March","contributors":[{"name":"Phillip Inman","imageUrl":"https://i.guim.co.uk/img/static/sys-images/Guardian/Pix/contributor/2007/09/28/phillip_inman_140x140.jpg?width=300&quality=85&auto=format&fit=max&s=ff3dad18a53e7f4c53a0f9e4e844fabf"}],"primaryDateLine":"Fri 12 May 2023 14.00 BST","secondaryDateLine":"First published on Fri 12 May 2023 06.41 BST"},{"id":"645de4808f08e7793c5e16a1","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"
The UK economy lagged behind some major international rivals in the first quarter of this year, but did outperform Germany.
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The 0.1% rise in UK GDP in January-March, reported this morning, matches the eurozone average of 0.1% in Q1 2023, but weaker than the European Union average of 0.3% growth.
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France, though, grew by 0.2% in January-March, while Italy and Spain both expanded by 0.5%, and Portugal’s growth accelerated to 1.6%.
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Germany’s economy stagnated in Q1 2023, though.
","elementId":"524230a3-b9c0-4ffc-b2f8-6e92131040f3"},{"_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","url":"https://www.theguardian.com/business/live/2023/apr/28/surprise-tech-earnings-amazon-stock-markets-ftse-100-eurozone-germany-gdp-natwest-business-live","text":"EU economy returns to growth despite surprise German stagnation – as it happened","prefix":"Related: ","role":"thumbnail","elementId":"2a3927e7-05fd-46b1-a335-2f4208e97e85"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"
Further afield, the US economy grew at an ‘annualised rate’ of 1.1% in Q1, which is the equivalent of almost 0.3% quarterly growth.
","elementId":"cfb4259d-c1da-48c3-9387-ae2adaacf658"},{"_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","url":"https://www.theguardian.com/business/2023/apr/27/us-economic-growth-slows-sharply-interest-rate-hikes","text":"US economic growth slows sharply as interest rate hikes kick in","prefix":"Related: ","role":"thumbnail","elementId":"4e16c744-c3d9-4d4e-89d1-e497ff98793f"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"
Japan is forecast to have grown by an annualised 0.7% – or almost 0.2% during the quarter – in the first three months of 2023.
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Canada is forecast to have grown by 2.5% on an annualized basis – or around 0.6% in the quarter.
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The 0.3% contraction in the UK economy in March is a surprise, says James Smith, ING’s developed markets economist.
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Smith warns that the economic data is “hard to read right now”, a problem that will be compounded by the extra Bank Holiday in May for the coronation.
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But in general, falling gas prices and a resilient jobs market suggests the near-term recession risk has eased, Smith says. And it you strip out all the volatility, the economy “seems to be reasonably stagnant”.
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Smith explains:
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\n
Monthly GDP shows an unexpected 0.3% fall in activity during March, owing to weakness across a range of sectors. March was memorably wet, so some of this underperformance can be attributed to bad weather, and to some extent also strike action. But that doesn’t seem to explain all of the disappointment, with a 0.8% fall in consumer-facing services, and casts doubt over the Bank of England’s tentative finding in yesterday’s Monetary Policy Report that private sector activity had staged a modest recovery throughout the first quarter.
\n
Ultimately, the recent figures have been thrown around by several one-off factors, ranging from the Queen’s funeral last year, to strikes and even some knock-on effect from the World Cup at the end of last year.
\n
That volatility will continue, given that the extra Bank Holiday this month for the Coronation will likely temporarily shave 0.5% off monthly GDP, only to be regained in June. While the impact of these additional holidays appears to have lessened compared to past decades, it’s probably enough to produce a 0.2% decline in overall second-quarter GDP.
\n
","elementId":"a28e78b2-6b08-4abe-85fd-bf9748582fd2"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1683874599000,"blockCreatedOnDisplay":"07.56 BST","blockLastUpdated":1683874835000,"blockLastUpdatedDisplay":"08.00 BST","blockFirstPublished":1683874836000,"blockFirstPublishedDisplay":"08.00 BST","blockFirstPublishedDisplayNoTimezone":"08.00","title":"ING: UK economy sees \"surprise contraction in March\"","contributors":[],"primaryDateLine":"Fri 12 May 2023 14.00 BST","secondaryDateLine":"First published on Fri 12 May 2023 06.41 BST"},{"id":"645dde988f08c4e696f27b6c","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"
Chancellor Jeremy Hunt has responded to today’s GDP report, saying:
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\n
“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.”
\n
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Yesterday, the BoE said that the fiscal support in Hunt’s Spring Budget had helped to strengthen the economic outlook.
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Hunt doesn’t mention, though, that the economy stalled in February, and contracted unexpectedly in March after a strong January.
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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.
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The UK economy was also hit by awful weather in March.
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March was “exceptionally wet”, the ONS says – indeed, the sixth wettest March since 1836.
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This hit retail sales in March, as wet weather kept people off the high street, and may also have hit output for other industries.
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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.
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The 0.1% growth estimated in January-March this morning follows 0.1% growth in the final quarter of 2022.
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The economy did contract, by 0.1%, in July-September.
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But to be a technical recession, the economy would need to have shrunk by two quarters in a row.
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And, the good news today is that it didn’t, despite the heavy pressures on households and businesses from rising prices and borrowing costs.
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BST","blockLastUpdated":1683872423000,"blockLastUpdatedDisplay":"07.20 BST","blockFirstPublished":1683872423000,"blockFirstPublishedDisplay":"07.20 BST","blockFirstPublishedDisplayNoTimezone":"07.20","title":"UK avoids winter recession","contributors":[],"primaryDateLine":"Fri 12 May 2023 14.00 BST","secondaryDateLine":"First published on Fri 12 May 2023 06.41 BST"},{"id":"645dd7a78f089152205d9e23","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"
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.
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The ONS says:
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\n
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.
\n
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.
\n
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Newsflash: The UK economy shrank in March, but still achieved growth in the first quarter of this year.
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New data from the Office for National Statistics shows that UK GDP fell by 0.3% in March, worse than economists expected.
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That follows stagnation in February.
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The contraction in March was driven by a 0.5% fall in services sector activity.
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Production output grew by 0.7% and construction by 0.2%.
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Output in consumer facing services fell by 0.8% in March 2023, after unrevised growth of 0.4% in February.
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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.
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GDP fell 0.3% in March 2023 but grew 0.1% across Quarter 1 (Jan to Mar) 2023 as a whole.
➡️ https://t.co/iYul07EYRr pic.twitter.com/c2PFJdcPhB
— Office for National Statistics (ONS) (@ONS) May 12, 2023
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Good morning. We’re about to learn how the UK economy performed in the first quarter of this year.
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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.
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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.
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GDP in March itself could be flat, though.
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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].
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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.
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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.
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On its upward growth revision, BoE governor Andrew Bailey said:
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“It’s a very big upward revision, but the level of growth is still very, it’s still weak, let’s be honest.”
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February’s growth was held back by civil service and teachers’ strikes, which hit the services sector.
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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.
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Further strikes will be held on May 31 and June 3 – the day of the FA Cup final at Wembley.
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Members of the Rail, Maritime and Transport union (RMT) will strike on Saturday – the day of the Eurovision Song Contest final in Liverpool.
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The agenda
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7am BST: UK GDP report for March and Q1 2023
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7am BST: UK trade report for March
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9.30am BST: Hong Kong GDP report
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3pm BST: University of Michigan index of US consumer sentiment
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Key events
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High inflation is also likely to push interest rates higher in the eurozone this year
The FT reports that the head of Germany’s central bank has said eurozone interest rates could still rise in September because underlying inflation measures that strip out energy and food prices are proving too sticky.
“The data don’t allow us to consider changing our view that further rate hikes will be necessary,” said Joachim Nagel, the Bundesbank president, adding:
“That also applies for beyond the summer break.”
Last week the ECB raised its key interest rates again, lifting its deposit rate up to 3.25%:
Bank of England chief economist Huw Pill has also argued that sweetened profit margins are not driving UK inflation, unlike in the eurozone where greedflation may be more of a problem.
Reuters has the details:
Bank of England Chief Economist Huw Pill said on Friday that high inflation in Britain did not appear to be driven by businesses seeking to widen their profit margins, unlike in the euro zone where there had been signs of this.
Pill told a BoE webinar that at an aggregate level there had not been much change in British companies’ profit margins, and that price rises largely reflected businesses passing on their higher energy costs.
“That does, a little bit, distinguish us from developments in other jurisdictions. In particular, in recent weeks and months there has been quite a lot of commentary about that in the euro area,” he said.
CWU: Further change in Royal Mail Group’s leadership team is vital
The Communications Workers Union has welcomed Simon Thompson’s decision to step down as Royal Mail’s CEO (see earlier post).
CWU General Secretary Dave Ward says Thompson is one of the key individuals responsible for the “financial crisis” that Royal Mail Group has created over the course of the last year.
Criticising Thompson’s management style, Ward also calls for further change at the company, saying:
“The CEO was also one of the key people responsible for the appalling mantra of ‘it’s our business to run’ – which saw the employer openly attack its own workforce on a relentless basis, including developing a culture of imposition and creating service quality and USO failures on a scale which threatens the future of the company.
“However, we recognise that the CEO was only one of the senior leadership team responsible for the unacceptable actions and behaviours of managers across the UK throughout this dispute. Further change in Royal Mail Group’s leadership team is vital.
“It is important that the next Royal Mail Group CEO is somebody who understands the only way to turn around the fortunes of the company is by taking the workforce with them.”
Ward has also told a webcast that Thompson’s departure wasn’t a surprise, and that the outgoing CEO had been ‘sidelined’ by the company’s board during the negotiations that led to the new pay deal:
LIVE: Simon Thompson gone – reaction and next steps https://t.co/DXJzCcsn7R
— The CWU (@CWUnews) May 12, 2023
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BoE’s Pill says “there may be more work to do” on inflation
Speaking of interest rates…. Bank of England chief economist Huw Pill has said today that the UK central bank might have to do more to contain the risks from the surge in inflation.
Pill told a BoE webinar that there was evidence of “a more favourable pattern in terms of the inflation outlook”.
However, this progress could be interrupted in ways different to past trends “which means that there may be more work to do”, Pill warned.
Pill was speaking a day after the BoE raised interest rates for a 12th meeting in a row, to a near-15 year high of 4.5%.
After that rate rise was announced, the Bank’s governor Andrew Bailey rebuked Pill for his “choice of words” after the chief economist said in April that people ‘need to accept’ they are poorer following the jump in energy costs (see yesterday’s blog for the details).
Morgan Stanley and Bank of America now expect one more interest hike from the Bank of England next month, after the British central bank raised rates to 4.5% yesterday and vowed to “stay the course” fighting inflation.
Reuters has the details:
BofA Global Research, which expected a pause next month, now sees a 25 basis points (bps) increase, lifting its terminal rate forecast for the BoE to 4.75%.
Morgan Stanley sees risks of wages growing more than the central bank’s forecast and introduced expectations for another 25 bps hike from the BoE in June, which they expect to be the final tightening of the cycle.
“At market-implied rates, the terminal mean forecast (for inflation) is just at 2% – which can be interpreted as a validation of the Bank Rate peak at 4.75%,” Morgan Stanley economists and strategists said in a note.
They expect the BoE to signal a “prolonged” hold in August, and reiterated their expectations for 150 bps worth of cuts in 2024.
BofA, meanwhile, expects only one 25 bps rate cut in the third quarter of 2024, compared to two previously, leaving its end-2024 BoE bank rate forecast at 4.5%.
UK economy expected to keep growing in Q2, says NIESR
NIESR, the economic forecasting group, believes the UK economy could keep growing in the second quarter of this year.
Following the 0.1% growth recorded in Q1 this morning, NIESR estimates the economy will grow by 0.2% in April-June.
In April alone, GDP is expected to rise by 0.3%, recovering March’s slump.
[In May, though, the extra bank holiday may hit activity.]
⚠️OUT NOW: Our latest monthly #GDP Tracker suggests monthly GDP will bounce back strongly in April, likely driven by strong #services performance with the second quarter of this year set to see GDP #growth of 0.2% 📈📊
Read here in full ⬇️https://t.co/oiJdYBTYPS
— National Institute of Economic and Social Research (@NIESRorg) May 12, 2023
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⚠️OUT NOW: Our latest monthly #GDP Tracker suggests monthly GDP will bounce back strongly in April, likely driven by strong #services performance with the second quarter of this year set to see GDP #growth of 0.2% 📈📊
Read here in full ⬇️https://t.co/oiJdYBTYPS
— National Institute of Economic and Social Research (@NIESRorg) May 12, 2023
Paula Bejarano Carbo, associate economist at NIESR, says
“Today’s data suggest that GDP grew by 0.1 per cent in the first quarter of 2023 compared to the fourth quarter of 2022, in line with our forecast published in last month’s tracker.
Encouragingly, the services, production, and construction sectors all saw quarter-on-quarter growth – a further sign that the economy as a whole is exhibiting more resilience than previously thought. Though monthly GDP fell by 0.3 per cent in March following no growth in February, high-frequency data suggest that monthly GDP will bounce back strongly in April, likely driven by strong services performance.
It is worth bearing in mind, however, that monthly GDP remains only 0.1 per cent above its February 2020 level – what we are seeing at the start of this year is (welcome) low growth, rather than a much-needed ‘jump-start’.”
Announcing his departure from Royal Mail, Simon Thompson says:
“I have been incredibly proud to lead Royal Mail during this crucial period in its 507 year history. The changes we have made, the infrastructure we have put in place, and the agreements negotiated with our trade unions mean that Royal Mail now has a chance to compete and grow. That is what I have always wanted, and it is now the right time to hand over to a new CEO to deliver the next stage of the company’s reinvention.
I would like to thank my team for their support during a difficult and important time of change.”
That deal was announced at the end of April, ending a long-running and bitter dispute that led to the first national strikes since its privatisation a decade ago.
The union had accused the company’s management of “a complete lack of integrity” and said it had taken strike action after Royal Mail began forcing through changes to work practices that had not been agreed upon, at offices across the country.
The company’s board had threatened to put the lossmaking postal service into a form of government-handled administration if a deal was not agreed.
The Communication Workers Union reacts:
— The CWU (@CWUnews) May 12, 2023
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Royal Mail CEO Simon Thompson to step down
Newsflash: Royal Mail boss Simon Thompson is to step down, ending a turbulent two-year stint at the helm of the postal operator.
International Distributions Services, Royal Mail’s parent company, has just told the City that Thompson believes it is “the right time for the company to move forward under new leadership”, following the recent negotiators’ agreement between Royal Mail and the CWU union, over a pay deal.
Thompson had been expected to step down this week, having been accused by unions of inflaming the bitter industrial dispute.
IDS says it is in “advanced stages of appointing a new CEO”; Thompson has agreed to remain with the business until 31 October 2023 as part of the transition.
Thompson’s credibility was put in question after a recent Commons select committee appearance, as my colleague Gwyn Topham explained on Monday:
A potential end to the long industrial dispute was reached last month in a provisional agreement with the Communication Workers Union, which has called strikes on 18 days in the past year. Members are voting on a three-year pay deal worth 10% that would also bring in Sunday working, but which the CWU said had headed off the “Uberisation” of Royal Mail jobs.
The union had accused the company’s management of “a complete lack of integrity” after changes to work practices that had not been agreed were imposed at offices across the country.
Thompson was accused of “incompetence or cluelessness” by MPs on the business committee after appearing before them in January and being recalled over questions about his evidence. They called on the regulator, Ofcom, to investigate whether the company had broken legal service requirements.
Today’s strikes on the railways will not help the economy to catch up with G7 rivals.
Members of Aslef, the train drivers’ union, have walked out today at more than a dozen train operators, disrupting services across England.
The leader of Aslef says pay negotiations with ministers have stalled over the past four months.
Aslef general secretary Mick Whelan said the union had seen “neither hide nor hair” from the Government since the beginning of the year, with “one token meeting” on January 6.
He told BBC Breakfast:
“They talk a good game, they don’t actually engage, they haven’t taken any ownership of this process as far as we’re concerned.
“The only people they talk to are the companies, they don’t talk to us.
Starmer: today’s GDP figures are “nothing to celebrate”
Sir Keir Starmer has said the latest economic growth figures were “nothing to celebrate” after UK gross domestic product (GDP) increased by 0.1% in the first quarter of this year.
Speaking to broadcasters during a visit to the Crick Institute in central London, the Labour leader said:
“This is nothing to celebrate and is yet more low growth on the back of 13 years of low growth.
“I think the essential question many people today will be asking themselves is, ‘Do I feel any better off now than I did 13 years ago when this Government started?’
“I think the resounding answer to that around the country will be, ‘No, I don’t’.”
Mark Sweney
As well as today’s UK GDP report, the other big news of the morning is that Mike Lynch, the billionaire founder of UK software group Autonomy, has been extradited to the US after losing his appeal in the High Court last month.
My colleague Mark Sweney reports:
Lynch is facing allegations that he duped the US firm Hewlett-Packard into overpaying when it struck an $11bn deal (£8.2bn) for his software firm Autonomy in 2011. He denies any wrongdoing.
Lynch, the founding investor of the British cybersecurity firm Darktrace, had said he was considering a last-ditch appeal to the European court of human rights after the high court ruling in London last month.
“On 21 April, the high court refused Dr Lynch’s permission to appeal his extradition,” a spokesperson for the Home Office said.
“As a result, the normal 28-day statutory deadline for surrender to the US applies. Dr Lynch was extradited to the US on 11 May.”
Analysts at UBS remain cautious on the UK’s growth outlook, despite the country avoiding recession over the last six months.
UBS economist Anna Titareva says:
With GDP growth showing marginal expansion in Q4 2022 and Q1 2023, two quarters which we previously expected to show the biggest contraction amid high energy bills, the UK has likely avoided a recession.
UBS are now reviewing their forecast that the UK economy would shrink by 0.4% this year – today’s GDP report suggests it could grow by 0.1% in 2023.
But higher business taxes, and mortgage costs, will weigh on growth, Titareva explains:
First, we expect the increase in the corporate tax (from 19% to 25%), the expiry of the super-deduction capital allowance (although somewhat offset by the new “100% First Year Allowance“) and tighter financial conditions to weigh on investment.
Second, higher mortgage repayments are likely to weigh on consumption.
Strikes knocked at least 0.1 percentage points off UK growth in January-March, estimates Cathal Kennedy, European economist at RBC Capital Markets.
Kennedy says:
Overall, reading from the falls in output in education (-0.7% q/q), transport (-1% q/q) and health (-0.5% q/q) we think that combined the direct impact of strikes shaved around 0.1ppt off Q1 growth (note that is just the direct impact and doesn’t take account of any indirect impacts).
That suggests UK growth could have been twice as fast in Q1 otherwise (+0.2%, not the +0.1% growth estimated this morning).
Resolution: the UK’s relative decline is clear
High inflation, and falling real wages, means that the current period of very weak economic growth will feel like a recession for many people.
James Smith of Resolution Foundation explains why, in this Twitter thread:
.@ONS GDP out for Q1 this morning and, despite weak data for March (-0.3% MoM), Q1 as a whole registered growth, albeit of just 0.1%. Clear that we're not out of the woods of the cost of living crisis yet with economy continuing to flatline. A short thread to follow…
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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.@ONS GDP out for Q1 this morning and, despite weak data for March (-0.3% MoM), Q1 as a whole registered growth, albeit of just 0.1%. Clear that we’re not out of the woods of the cost of living crisis yet with economy continuing to flatline. A short thread to follow…
— JamesSmithRF (@JamesSmithRF) May 12, 2023
The good news: growth of 0.1% in Q1 2023 is clearly not the recession that many had been fearing. And was even a bit stronger than yesterday's Bank of England forecast of flat GDP in Q1. pic.twitter.com/OWSaYF707k
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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The good news: growth of 0.1% in Q1 2023 is clearly not the recession that many had been fearing. And was even a bit stronger than yesterday’s Bank of England forecast of flat GDP in Q1. pic.twitter.com/OWSaYF707k
— JamesSmithRF (@JamesSmithRF) May 12, 2023
Bad news: this is still very weak by historical standards and the economy flatlining will feel like a recession to many. Growth of just 0.2% over the past year is weaker than *quarterly* average growth before the pandemic! pic.twitter.com/0A29JIISNc
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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Bad news: this is still very weak by historical standards and the economy flatlining will feel like a recession to many. Growth of just 0.2% over the past year is weaker than *quarterly* average growth before the pandemic! pic.twitter.com/0A29JIISNc
— JamesSmithRF (@JamesSmithRF) May 12, 2023
The picture is one of weak growth across major advanced economies in Q1 2023 with the UK is faring better than some… pic.twitter.com/ABChcM3xsW
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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The picture is one of weak growth across major advanced economies in Q1 2023 with the UK is faring better than some… pic.twitter.com/ABChcM3xsW
— JamesSmithRF (@JamesSmithRF) May 12, 2023
…but if we zoom out and look at the post-pandemic period, the UK's relative decline is clear – on a quarterly basis UK GDP is still below its pre-pandemic level in Q4 2019. We are the only G7 country in this position. pic.twitter.com/qfP4H63zjp
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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…but if we zoom out and look at the post-pandemic period, the UK’s relative decline is clear – on a quarterly basis UK GDP is still below its pre-pandemic level in Q4 2019. We are the only G7 country in this position. pic.twitter.com/qfP4H63zjp
— JamesSmithRF (@JamesSmithRF) May 12, 2023
Stepping back, this chart reminds you that the Bank of England told us yesterday we're in the midst of a period of stagnant growth – so looks likely that we're likely to get more disappointing GDP growth in the coming months… pic.twitter.com/YaJAaBPN0m
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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Stepping back, this chart reminds you that the Bank of England told us yesterday we’re in the midst of a period of stagnant growth – so looks likely that we’re likely to get more disappointing GDP growth in the coming months… pic.twitter.com/YaJAaBPN0m
— JamesSmithRF (@JamesSmithRF) May 12, 2023
And stepping back, you can see the blight of weak growth in recent years with GDP now a whopping 7% below its pre-pandemic trend. Clearly the first priority is defeating high inflation, but addressing this terrible growth performance will be the challenge for the decade ahead. pic.twitter.com/Oq0wzFrCF1
— JamesSmithRF (@JamesSmithRF) May 12, 2023
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And stepping back, you can see the blight of weak growth in recent years with GDP now a whopping 7% below its pre-pandemic trend. Clearly the first priority is defeating high inflation, but addressing this terrible growth performance will be the challenge for the decade ahead. pic.twitter.com/Oq0wzFrCF1
— JamesSmithRF (@JamesSmithRF) May 12, 2023
Analysis: Too early to sound the all-clear as impact of UK rate rises yet to be felt
Our economics editor, Larry Elliott, says it is still too soon to sound the all clear, let alone hang out the bunting, for the UK economy.
He points out that the economy is still 0.5% smaller than it was in late 2019, the date of the last general election and the period immediately before the start of the Covid-19 pandemic.
Larry explains:
The UK economy has been going nowhere for the past year. After rebounding most of the way out of its pandemic trough by early last year, there has been virtually no movement. In three of the last four quarters – including the first three months of 2023 – there was growth of 0.1%, and in the other the economy contracted by 0.1%.
This is unusual. Periods when the economy moves sideways are rare, especially ones that go for as long as a year. They tend to be followed either by recession or recovery, and while the signs are that it will be the latter, it is too soon to say for sure.
On the upside, the economy continued to expand through what was always going to be a tough winter. A combination of double-digit inflation and widespread strikes represented two serious headwinds to activity, and even 0.1% growth is better than most forecasters were expecting.
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