Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said: “These figures confirm an easy exit from the shallowest of recessions for the UK, as lower inflation helped return the economy to growth in the first quarter.”
However, he added: “The UK’s escape from recession is a rather hollow victory because the big picture remains one of an economy struggling with stagnation, as poor productivity and high economic inactivity limits our growth potential.
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“The economy could struggle to kick on further in the second quarter as the boost to people’s incomes from weaker inflation is partly curtailed by renewed caution to spend and invest, amid higher unemployment and ongoing political uncertainty.”
The National Institute of Economic and Social Research think-tank said: “The fact that the UK’s GDP (gross domestic product) growth transitioned into positive territory after experiencing the shallow recession in the second half of 2023 is encouraging.
“However, the UK economy has largely flatlined following the initial stages of post-pandemic recovery. To escape the low-growth trend into a new and sustained era of high output growth requires structural changes and public investment.”
The 0.6% rise in GDP in the first quarter reported yesterday by the Office for National Statistics was greater than the 0.4% increase forecast by economists polled by Reuters.
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It followed a 0.3% decline in GDP in the final three months of last year. GDP fell by 0.1% in the third quarter of 2023.
The UK services sector grew by 0.7% in the first quarter. The production sector expanded by 0.8% but construction output tumbled by 0.9%.
Mr Thiru flagged potential for the faster-than-expected GDP growth in the first quarter to delay a cut in benchmark UK interest rates.
Base rates have been hiked by the Bank of England’s Monetary Policy Committee from a record low of 0.1% in December 2021 to 5.25%.
Mr Thiru said: “The strong exit from recession may inadvertently keep UK interest rates higher for longer by giving those policymakers still worried about underlying inflationary pressures enough comfort on economic conditions to continue putting off cutting rates.”
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Thomas Pugh, economist at accountancy firm RSM UK, observed that the ONS figures showed that real GDP per head “finally increased” in the first quarter, by 0.4%. He noted this followed “seven consecutive quarters without positive growth”.
However, Mr Pugh noted that real GDP per head was nevertheless 0.7% lower than in the same quarter a year earlier.
Contemplating the outlook for interest rates, he said: “Such a strong rebound in GDP may take a bit of pressure off the MPC to start cutting interest rates as soon as possible. Indeed, with the economy posting strong growth in Q1, the cost of waiting to cut interest rates will probably be seen as lower now.”
However, Mr Pugh added: “The inflation and labour market data will be much more important to the MPC’s decision. We still think the first cut will come in June, but it’s a close call between then and August.”
Julian Jessop, economics fellow at the Institute of Economic Affairs “free market think tank”, said the exit from recession should boost consumer and business confidence.
However, he added: “The numbers are still little to get excited about. The first-quarter figures were flattered by a big boost from net trade, as imports fell by more than exports, and by the favourable comparison with the weak figures in the second half of last year. Consumer spending only grew by 0.2%. GDP per capita rose by 0.4%, but remains 0.7% lower than a year earlier.”
