business

Signs Of Economic Green Shoots, But Still A Strong Case For An Interest Rate Cut

ONS data showed monthly GDP rising by 0.2% in January 2024, following a fall of 0.1% in December 2023. Here's what business says:

Image by Sarah Richter from Pixabay

UK GDP rose 0.2% in January, following a 0.1% fall in December.
Real GDP fell 0.1% over the three months to the end of January, compared to the three months to October 2023
Services output grew 0.2% quarter-on-quarter, with 0.6% growth in consumer facing services
Construction output grew 1.1%% quarter-on-quarter.
Production fell 0.2% quarter-on-quarter.
GDP had been expected to rise 0.2% month-on-month (Trading Economics)
Nicholas Hyett, Investment Manager, Wealth Club:

“A stronger month for the dominant consumer sector, particularly consumer facing services, together with pick up in construction activity means the UK economy is back in growth in January – albeit modest. That was despite some disruption to global supply trains from conflict in the Middle East and Red Sea, and the impact of strikes in healthcare, railways and the Screen Actors Guild – all of which dented overall output.

The UK’s small manufacturing sector continues to struggle – thanks in large part to a continued slowdown in North Sea oil investment. The Chancellor’s recent decision to extend a windfall tax on UK oil & gas producers is unlikely to do a sector which has been in decline since at least the late 1990s many favours – further discouraging investment in what is a mature oil field anyway.

Overall performance is in line with market expectations, so unlikely to cause a major move in markets. But, if the return to growth can be sustained the country should be on course to exit recession in pretty short order – a relief for the government even if the man or woman on the street is unlikely to notice the difference between anaemic growth and mild recession."

Ben Jones, CBI Lead Economist, said:

“We take some encouragement from this morning’s figures. Not only do they increase our confidence that the economy will exit its mild recession in the first quarter, but growth was a little stronger than expected. Alongside the recent upturn in some business surveys, this adds to signs that the economy may be turning a corner.

“Momentum is likely to remain weak in the near-term, but the outlook for this year is improving. With both energy and domestic inflation moderating faster than expected, the chance of a modest cut in interest rates in the summer has risen. And the recent Budget will deliver some added relief for consumers and build on the measures in the Autumn Statement to strengthen incentives for business investment.

“Ahead of the General Election, all parties must now focus on creating a business environment which ensures the UK stays ahead of its rivals and maximises the country’s growth potential through targeted fiscal and regulatory levers to support the industries that will power sustainable economic growth in the years to come. “

Dr Roger Barker, Director of Policy at the Institute of Directors, said:

“It is encouraging to see the UK economy returning to growth at the start of 2024 – after having been technically in recession at the end of 2023.

“Last week, the OBR forecast growth of 0.8% for 2024 as a whole. Although it is early days, January’s growth figure is consistent with achieving that kind of outcome.

“The latest figures show a bounce back in the retail sector, with retail output up 3.4% on the month, similar to the growth recorded in January’s figures for retail sales. This is an encouraging green shoot, given the weakness of the retail sector over the Christmas period.

“Interestingly, the professional services sector appears to be experiencing some weakness at the current time, with output in areas like legal and accounting services, and consultancy, registering material declines.

“Despite a positive start to the year, the UK economy remains in a relatively fragile position. The case for an early cut in interest rates by the Bank of England is still a strong one.”

Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:

"Some growth is better than no growth, but the 0.2% increase in output in January is little to shout about. Monthly GDP has been oscillating between expansion and contraction, so one month’s data alone are not enough to change the big picture.

"For what it is worth, the UK almost certainly emerged from recession in the first quarter of the year. The slump in the final three months of 2023 gives a low base for comparison, and recent business surveys have been more positive. Falling inflation and lower interest rates should help growth to pick up over the course of 2024.

"Nonetheless, the recovery is likely to remain weak without more action to improve the supply side of the economy – the incentives to work and to invest – and to fix the UK’s longstanding productivity problems. Fundamental reform of our broken planning system would be a good start."