why it matters
This modest expansion has cemented the prospects for improvement in the UK economy. There were fears of a recession late last year, but since then wholesale gas prices have fallen significantly and the economy has performed better than expected. The UK recorded two consecutive quarters of growth without going into recession over the winter.
That’s good news amid a deep cost-of-living crisis, with household budgets squeezed by double-digit or near-per-year inflation. Annual inflation was 10.1% in March.
In addition to falling energy prices, businesses and households have shown some resilience to the tough economic conditions. In particular, employers continued to hire workers after previous hires proved difficult and sought to find other ways to cut costs as expenses increased.
However, the reassurance that this data provides is limited. The UK economy remains sluggish at just 0.1% growth, slightly smaller than it was at the end of 2019 before the coronavirus pandemic.
David Barrier, head of research at the British Chamber of Commerce, said in a statement that the data showed Britain was in a “period of virtually no growth”. “The core issues affecting UK businesses remain unresolved, including unprecedented inflation, energy price shocks and a record tight labor market.”
Background
The slowdown in growth is not limited to the UK. The rest of Europe is still reeling from the Ukraine war, shocks to energy prices and soaring food prices. The eurozone economy also grew by just 0.1% in the first quarter of this year.
Gross domestic product data provide a useful overview of how the economy as a whole is performing, but they mask the different experiences of households and businesses. A long period of lackluster growth and high inflation is not being felt equally across the UK.
According to the National Institute of Economic and Social Research, the poorest 20% of households have a 20% decline in living standards compared to pre-pandemic levels, which is about £4,000 ($5,000) worsening per year. means that By comparison, her fifth richest person experienced only her 5% decline in living standards.
what’s next
The UK’s economic outlook, while improving, is far from rosy.
On Thursday, the Bank of England said it expected the economy to be broadly flat through the first half of the year, before growing significantly further in the first half of the year. summer. The strike and the addition of holidays accompanying the coronation of Charles III will weigh on his GDP figures this quarter. The bank expects the country’s growth to average 0.25% in 2023 as the 12th consecutive rate hike hits the economy as a whole. The bank expects growth to be just 0.75% in 2024 and 2025.
As the year progresses, UK households should benefit from lower wholesale energy prices, which will start to bring down utility costs. However, food price hikes are not expected to be mitigated much. Food inflation hit nearly 20% in March, the highest in more than 45 years. The central bank said this week that food prices were not expected to fall in the near term, only that inflation would slow, and even then it would be at a slower pace than previously expected.
