The UK’s exit from recession during the first three months of the year was stronger than initial figures suggested, according to official data.
In an update on its first growth estimate, the Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.7% between January and March.
It had originally said on 10 May that output was 0.6% up on the previous three months – a positive figure that brought to an end the shallow recession that struck during the second half of 2023.
Then, the effects of Bank of England interest rate rises to combat inflation were widely blamed by economists for choking off demand.
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All the growth during the January-March period was attributable to the services sector, which accounts for almost 80% of the economy.
We have since learned that there was zero growth recorded by the ONS for the month of April, with poor weather hitting construction and high streets.
The data is the last from the ONS before the country goes to the polls on 4 July – with the economy, and personal finances especially, among the topics high on voters’ minds following the effects of the COVID pandemic and energy-driven cost of living crisis.
The timing of the general election has coincided with fierce debate over whether the Bank should now be cutting interest rates, allowing for an easing in borrowing costs.
At its last policy meeting just over a week ago, the rate-setting committee voted 7-2 to maintain Bank rate at 5.25%.
The minutes of the meeting betrayed continuing worries about the pace of wage growth and stubborn inflation within services.
The Bank fears that a rate rise, at this stage, risks fuelling price growth further as basic salaries grow at a pace of 6%.
The rate of inflation is currently back at its 2% target for the first time in three years.
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May: ‘Path is downwards’ on interest rates
Despite this gap in favour of consumers, with wage growth outpacing inflation since June last year, the effects of the crises since 2020 have taken their toll, according to campaigners on living standards.
The Resolution Foundation said on Friday that real household disposable incomes were lower in early 2024 than they were back in late 2019.
It said that growth so far in this parliament was weaker than all but two parliaments since 1910, despite growth over the past year of 2.4%.
The thinktank declared that average incomes were £120 a year lower per person over the period since the last election.
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‘We don’t know if we’re voting for tax rises or spending cuts’
Figures such as this get to the heart of the election campaign amid criticism of the main parties’ lack of clarity over their tax and spending commitments.
But they also give ammunition to critics of the Bank of England who argue that interest rates should come down.
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In its financial stability report on Thursday, there was a further nod to pressures ahead as it warned there were still three million mortgage holders yet to feel the pain of higher interest rates in their repayments.
As things stand, financial markets and economists see August or September as the likely months for the first rate cut, barring any new shocks.
For many, the prospect of action in June was largely eradicated by the election – the Bank anxious to avoid any questions over its independence.