UK growth revised higher in boost to next government – business live | Business

Today’s GDP growth upgrade is the final official piece of UK economic data ahead of next Thursday’s general election.

In the last couple of weeks, we’ve learned that inflation has fallen back to the 2% target, but also that unemployment – and wages – are rising, while growth fizzled out in April.

Neil Shah, director of research at Edison Group, says:

The latest UK GDP data shows that Britain’s economy grew quicker than expected in the first quarter of the year, expanding by 0.7% from the previous quarter. This shows that the UK economy still showed slow growth, rather than the most timely monthly estimate that showed no growth in April 2024.

Particularly, services grew by 0.8% on the quarter with widespread growth across the sector; elsewhere the production sector grew by 0.6% while the construction sector fell by 0.6%.

These figures are released less than a week before the General Election, serving as a last check on economic growth. These figures show that the UK economy is slowly starting to turn corner, confirming that the Britain’s economy exited a shallow recession at the start of 2024. Albeit slow, the economy has increased in the latest quarter following two consecutive quarters of negative growth and is slowly showing signs of a bounce back despite significant headwinds.

The upward revision to Q1 GDP growth from 0.6% quarter-on-quarter to 0.7% q/q this morning (see opening post) suggests whoever is Prime Minister this time next week may benefit from the economic recovery being a bit stronger than expected.

So says Paul Dales, chief UK economist at Capital Economics.

He told clients that the economy may grow faster than expected this year – a boost to the winner of next Thursday’s general election.

The larger rise in GDP in Q1 was mainly due to upward revisions to consumer spending (from +0.2% q/q to +0.4% q/q) and the contribution from net trade (from +0.4ppts to +0.6ppts) more than offsetting downward revisions to government spending (from +0.3% q/q to 0.0% q/q) and residential investment (from +4.1% q/q to +3.2% q/q).

The revision suggests that real GDP growth in 2024 as a whole may be more likely to come in a bit above our existing forecast of 1.0%.

Dales adds:

It now looks as though real household disposable income will grow by more than our forecast of 2.0% this year and we are expecting a solid 3.5% gain next year too. This underpins our forecast that consumer spending will be the main driver of a rise in GDP of at least 1.0% this year and about 1.5% next year. Should the saving rate fall back from its unusually high level, the economic recovery could be even stronger.

This is certainly good news for whoever will be the Prime Minister this time next week, although it could also contribute to the Bank of England cutting interest rates a bit slower than otherwise.

The UK stock market has opened higher, as traders digest today’s upgrade to UK GDP.

The FTSE 100 index has gained 40 points, or 0.5%, to 8220 points, recovering yesterday’s drop.

So far his year, the Footsie has gained over 6%.

Mark Preskett, senior portfolio manager at Morningstar Wealth, says:

“The upward revision to the UK’s Q1 GDP is encouraging and further evidence that the UK economy is recovering. The services upgrade – to 0.8% from 0.7% – backs what we have been seeing in inflation data.

“Among UK equities, we are seeing increased dividend payments, share buybacks and M&A activity this year, and this suggests some of the positive economic activity is translating into improved shareholder returns.”

Bad news! UK business investment was weaker than first estimated at the start of this year.

Today’s UK national accounts estimates that business investment increased by 0.5% in the January-March quarter, down from the previous estimate of 0.9% growth.

Compared with the same quarter a year ago, business investment is estimated to have fallen by 1.0%.

This is a blow, as business investment is key to achieving improved productivity, and growth. Rising interest rates have been making it harder for businesses to invest.

UK real households’ disposable income (RHDI) is estimated to have grown by 0.7% in the first quarter of this year, matching the growth in Q4 2023.

This is a measure of how much income a household is left with, after tax, once you’ve adjusted for inflation.

The ONS reports that wages rose in the last quarter, but so did the tax take…..

Within RHDI, nominal gross disposable income saw growth at 1.1%, because of an increase in compensation of employees of £4.3 billion. This was itself driven by an increase in wages and salaries of £3.0 billion and a decrease in households’ actual social contributions paid by employees of £3.4 billion, which was driven by the reduction of the employees’ National Insurance contribution rate.

This was offset by a rise in taxes on income and wealth of £3.6 billion, which was driven by an increase in taxes on self-employment of £3.1 billion and an increase in the implied deflator of 0.4%.

Interestingly, the UK’s household savings ratio has risen – showing that people have more excess cash than at the end of last year.

The household saving ratio is estimated at 11.1% in the January-March quarter, up from 10.2% in October-December.

This ratio measures the average percentage of disposable income that is saved.

The ONS says this is driven by an increase in pensions, in income from wages and salaries, and by the cut in national insurance rates at the start of the year.

GDP per capita is a better measure of economic performance, as it measures how much the economy grew for each member of the population.

And there’s good news here too, finally.

Real GDP per head is estimated to have increased by 0.5% in the first quarter of 2024, up from a previous estimate of 0.4% growth.

That follows seven consecutive quarters without positive growth.

And on an annual basis, real GDP per capita – basically a measure of living standards – is estimated to be 0.6% lower compared with the same quarter a year ago.

This table, from today’s national accounts, shows how the UK was the fastest-growing G7 member in Q1….

….but lags behind many rivals when you look at growth since the pandemic.

As you can see, the UK (+0.7%) posted the fastest quarter-on-quarter growth in Q1, ahead of Canada (+0.4%), Italy and the US (both +0.3%), France and Germany (both +0.2%) and Japan (which shrank by 0.5%).

But since the end of 2019, the UK has grown by 1.8%, slower than the US, Canada, Italy, France and Japan, but better than Germany which has barely grown since.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK economy grew faster than previously thought at the start of this year, as it emerged from last year’s short recession.

Newly updated GDP data, just released, shows that the economy grew by 0.7% in January-March.

That’s up from a previous estimate of 0.6%, and confirms that the UK was the fastest growing G7 economy in the first quarter of this year. That could bolster Rishi Sunak’s argument that the economy is turning a corner, ahead of next week’s general election.

The Office for National Statistics released this encouraging news in the UK’s latest GDP quarterly national accounts, for January to March 2024.

They show that the UK’s services sector expanded by 0.8% in the quarter, up from a previous estimate of 0.7% growth.

Production, though, is now estimated to have grown by 0.6%, revised down from a 0.8% increase.

The construction sector shrank by 0.6%, as builders were hit by bad weather this year.

The ONS reports:

• In expenditure terms, there were increases in the volume of net trade and household spending, partially offset by falls in gross capital formation and government consumption.

• The household saving ratio is estimated to be 11.1% in the latest quarter, up from 10.2% in Quarter 4 (Oct to Dec) 2023.

• Real households’ disposable income (RHDI) is estimated to have grown by 0.7% in Quarter 1 2024, maintaining the same growth as the previous quarter.

Today’s GDP report also confirms that the economy shrank in the second half of last year – contracting by 0.1% in quarter 3, and 0.3% in quarter 4 – a technical recession.

The agenda

• 7am BST: UK national accounts for Q1 2024

• 7am BST: German retail sales for May

• 7.45am BST: French inflation rate for June

• 8.55am BST: German unemployment report for June

• 10am BST: Italian inflation rate for June

• 1.30pm BST: US PCE inflation index for May

• 3pm BST: University of Michigan’s consumer sentiment index for June