Introduction: UK economy returns to growth in January, boosting hopes of recovery
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Boosting hopes of recovery, the UK economy grew by 0.2% in January, lifted by the services and construction sectors while industrial output fell.
This compares with a decline of 0.1% in December, according to the Office for National Statistics, and was in line with expectations.
In the three months to January, GDP is estimated to have fallen by 0.1% compared with the three months to October.
Services grew by 0.2% in January and was the largest contributor to the rise in GDP, but showed no growth over the three-month period. Production output fell by 0.2% in January, and in the three months to January it was also down by 0.2%.
Construction output grew by 1.1% in January, but in the three-month period it fell by 0.9%.
The UK entered a shallow recession when GDP fell in the third and fourth quarters of 2023, but the latest figures will bring some relief to Rishi Sunak’s government.
The largest contribution to the growth in services in January came from retailers, as well as wholesalers. Health and social work activities grew by 0.6% following a 0.9% fall in December. Education also grew, by 0.7%, following three monthly declines.
However, legal activities, architecture and engineering, accounting, tax consultancy all declined. Information and communication services fell by 0.7% in January, mainly because of a 9.5% drop in motion picture, video and TV programme production.
Liz McKeown, the ONS director of economic statistics, said:
The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.
These were partially offset by falls in TV and film production, lawyers and the often-erratic pharmaceutical industry.
Over the last three months as a whole, the economy contracted slightly.
Here is our first short take:
The Agenda
Key events
The National Institute of Economic and Social Research, a thinktank, was more guarded, pointing out that UK economic growth has been near-zero since 2022 and GDP per head remains lower than pre-Covid.
‘Recession rapidly receding in rear-view mirror’
Rob Wood, chief UK economist at Pantheon Macroeconomics, said:
Last year’s minor recession is already rapidly receding in the rear-view mirror as real wage growth drives improving household spending power. January’s GDP was all about retail sales
We are optimistic about the near-term outlook for GDP, despite its reliance on retail sales in January. For a start, we think household real disposable income will post a strong 2.2% year-over-year increase in 2024, propelling real consumer spending to an average increase of 0.5% quarter-to-quarter through 2024. Business and consumer confidence surveys also point to improving growth.
January’s GDP rebound sets the UK up for a solid first quarter. We look for GDP to gain 0.3% quarter-to-quarter in Q1, comfortably beating the monetary policy committee’s forecast of 0.1%. Stronger-than-expected growth will keep the MPC on its toes, despite wage growth slowing again in yesterday’s data. We still look for the first Bank Rate cut in June.
GDP data suggests UK recession over, economists say
The 0.2% monthly rise in GDP in January indicates that the UK’s shallow recession at the end of last year is already over, according to a number of economists.
Sanjay Raja, Deutsche Bank’s chief UK economist, said:
January GDP started on the right foot, expanding by 0.2% m-o-m. Driving the rebound in output was a jump in services (0.2% m-o-m) and an even bigger jump in construction output (1.1% m-o-m).
Big picture: the economy is starting to turn a corner. The technical recession that the UK slipped into late last year will be short-lived. And we should see growth gradually return to its trend rate over the course of the year, as sentiment continues its uptrend and fiscal and monetary policy loosen through 2024.
James Smith, developed markets economist at ING, said:
The UK economy bounced back in January following a volatile but overall weak fourth quarter. Monthly GDP increased by 0.2%, some of which is thanks to a strong rebound in retail activity after an unexpectedly weak Christmas trading period.
It’s worth emphasising that these GDP figures have been all over the place over the past few months, not least in manufacturing where a large drop in October’s production numbers gave way to a swift recovery in November and December. Manufacturing was flat in the first month of this year.
We therefore shouldn’t overstate one month’s worth of GDP figures, but we think it is consistent with the gradual recovery in activity that we expect over the coming months. We think the decline in overall fourth quarter GDP, which marked the second consecutive quarter of negative growth and therefore a technical recession, is unlikely to be repeated in the first quarter of 2024.
There are green shoots in some of the major business surveys, including the services PMI, which at 53.8, is not only in expansionary territory but also sits some way above the equivalent eurozone series. We also expect a better year for the UK consumer with rate cuts on the horizon and given the recent fall in wholesale gas prices.
Metro Bank to cut 1,000 jobs by mid-April
News flash: Metro Bank says about 1,000 jobs will go by mid-April under cost-saving plans, more than it had previously announced.
The bank will slash 22% from its 4,266-strong workforce, more than the 20% (or 800 jobs) reduction it had initially planned.
Metro Bank had planned to cut annual costs by £50m in the first quarter of 2024, and today said it would cut a further £30m by the end of the year.
The news came as it unveiled an underlying loss before tax of £16.9m for 2023, compared with a loss of £50.6m in 2022.
Daniel Frumkin, the chief executive, said:
During the year we also launched a cost saving plan which included reducing store hours and roles across the organisation. These efforts will ensure the bank is right-sized for the future, with a strong focus on both digital and great customer service.
Ruth Gregory, deputy chief UK economist at Capital Economics, said:
The news that the economy expanded by 0.2% month-on-month in January suggests the UK economy may already have moved out of recession and implies there is some upside to our 2024 GDP growth forecast of 0.0%.
We already knew that the retail sector had expanded strongly in January. That helped to drive a 0.2% rise in services output. But construction output also rebounded by 1.1% after a weak December.
That said, elsewhere the figures were more disappointing. Output in the industrial sector fell by 0.2% (mainly due to a fall in mining and quarrying activity). And further strike action (in total 203,000 working days were lost to strikes in January versus 108,000 in December) dampened output in the transport, health and film/TV production sectors.
Within industrial production, mining and quarrying output fell by 1.3% in January, following December’s 1.8% drop. The ONS said the decline since January last year is mainly down to lower crude oil and natural gas extraction.
Manufacturing showed no growth in January but grew y 0.3% in the three months to January.
The detail shows that education was the largest negative contributor to services output in the three months to January, falling by 1.7%. Wholesale and retail trade; repair and maintenance of motor vehicles and motorcycles, and finance and insurance activities also declined by 0.4% and 0.5% respectively.
These falls were offset by growth in six of the 14 services subsectors over the same period, with the largest positive contribution coming from growth of 0.8% in professional, scientific and technical activities.
Introduction: UK economy returns to growth in January, boosting hopes of recovery
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Boosting hopes of recovery, the UK economy grew by 0.2% in January, lifted by the services and construction sectors while industrial output fell.
This compares with a decline of 0.1% in December, according to the Office for National Statistics, and was in line with expectations.
In the three months to January, GDP is estimated to have fallen by 0.1% compared with the three months to October.
Services grew by 0.2% in January and was the largest contributor to the rise in GDP, but showed no growth over the three-month period. Production output fell by 0.2% in January, and in the three months to January it was also down by 0.2%.
Construction output grew by 1.1% in January, but in the three-month period it fell by 0.9%.
The UK entered a shallow recession when GDP fell in the third and fourth quarters of 2023, but the latest figures will bring some relief to Rishi Sunak’s government.
The largest contribution to the growth in services in January came from retailers, as well as wholesalers. Health and social work activities grew by 0.6% following a 0.9% fall in December. Education also grew, by 0.7%, following three monthly declines.
However, legal activities, architecture and engineering, accounting, tax consultancy all declined. Information and communication services fell by 0.7% in January, mainly because of a 9.5% drop in motion picture, video and TV programme production.
Liz McKeown, the ONS director of economic statistics, said:
The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.
These were partially offset by falls in TV and film production, lawyers and the often-erratic pharmaceutical industry.
Over the last three months as a whole, the economy contracted slightly.
Here is our first short take:
The Agenda
