Britain’s economy bounced back from recession faster than initially reported in the first quarter of this year, according to revised data from the Office for National Statistics (ONS) released on Friday.
The country’s gross domestic product (GDP) grew by 0.7 per cent from the previous quarter, surpassing the earlier estimate of 0.6 per cent growth. However, things are still a bit uncertain as the nation gears up for a crucial election next week.
In the second half of 2023, Britain’s GDP experienced two consecutive quarters of decline. Despite the recent positive growth, the overall economic outlook remains weak, which presents challenges for Prime Minister Rishi Sunak and his Conservative Party leading up to the election.
Opinion polls predict that the Labour Party, led by Keir Starmer, will secure a comfortable victory.
The first-quarter GDP was only 0.3 per cent higher than the previous year, showing some improvement from the initial estimate of 0.2 per cent.
However, when it comes to real household disposable income per person, things weren’t as positive. In the first quarter of 2024, it was 0.6 per cent lower compared to the final quarter of 2019, before the COVID-19 pandemic hit.
Adam Corlett, a principal economist at the Resolution Foundation, pointed out that income growth has significantly declined during this parliamentary term, making it the worst since the 1950s and the third worst since 1910.
He stressed that addressing this “great living standards slowdown” will be a critical challenge for the next government.
Since the last election, Britain’s economy has faced a slew of obstacles, including the lasting impact of the pandemic on the labour force, rising inflation due to Russia’s invasion of Ukraine, and post-Brexit trade issues.
In the first quarter of 2024, the economy grew by 1.8 per cent compared to the final quarter of 2019, making it the weakest performer among the G7 economies, except for Germany. However, France and Japan haven’t fared much better.
Despite a solid start to 2024, the outlook remains challenging. The first quarter saw the fastest growth since the last quarter of 2021, and the Bank of England (BOE) estimates a 0.5 per cent GDP growth for the second quarter.
The ONS data offers some relief, showing a 2.4 per cent increase in real household disposable income per person over the past year, driven by rapid wage growth in a tight labour market. GDP per person rose quarterly for the first time in two years, although it’s still 0.6 per cent lower than a year ago.
The BOE sees the strong growth in the first half of the year as a rebound from last year’s weakness rather than a sustained period of expansion, estimating the underlying growth rate at around 0.25 per cent per quarter.
Government budget forecasters are more optimistic, predicting annual growth to rise from 0.8 per cent this year to nearly 2 per cent in the coming years.
Keir Starmer has criticised these forecasts as overly pessimistic, vowing to achieve the highest sustained growth among the G7 countries through reforms such as easing planning controls to speed up infrastructure development and constructing 1.5 million new homes.
However, Britain hasn’t consistently grown faster than 2 per cent annually since before the 2008 financial crisis. Economists attribute this to a slowdown in productivity growth, which has been worsened by weak investment.
Furthermore, ONS data revealed a decline in foreign direct investment in Britain for the fifth time in six quarters during January-March, further highlighting the economic challenges ahead.
(With inputs from Reuters)