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UK economy escapes recession with fastest growth since 2021, sending FTSE 100 to new high – business live


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UK economy returns to growth

Newsflash: The UK’s short, shallow, recession is over.

The UK economy grew by 0.6% in the first quarter of this year, the Office for National Statistics has reported.

That’s stronger growth than expected.

The ONS says the recovery was driven by the services sector, and industry:

  • In output terms, services grew by 0.7% on the quarter with widespread growth across the sector; elsewhere the production sector grew by 0.8% while the construction sector fell by 0.9%.

  • In expenditure terms, there were increases in the volume of net trade, household spending and government spending, partially offset by falls in gross capital formation.

This rise in GDP means that the economy is no longer in a technical recession, after activity fell in the third and fourth quarters of last year.

Key events

Analysis: It’s better news, but not boom-boom Britain

Larry Elliott

The first quarterly expansion in a year. Recession receding into the rear-view mirror. A stronger performance in recent months than the Bank of England and the City had thought likely. Faster growth in early 2024 than any other member of the G7 group of leading industrial nations.

When you are in as deep a political hole as the current government you seize on any good news, and there was plenty for Jeremy Hunt to choose from in the latest figures from the Office for National Statistics. The figures were proof that the economy was returning to “full health for the first time since the pandemic”, the chancellor said.

Yet when people look back on the early months of 2024 they will probably remember the relentlessly awful weather rather than a time when the economy was cooking with gas. Boom-boom Britain it certainly isn’t.

To be sure, the UK has emerged from recession but the downturn in the second half of 2023 was a much more modest affair than some of the monster downturns of the past 50 years. The hollowing out of manufacturing in the early 1980s was a genuine slump, as was the housing market crash in the early 1990s and the near collapse of the banks in the global financial crisis of 2008.

The bigger picture is that Britain’s growth performance during the current parliament has been extremely weak…..

More here:

City economists are likely to upgrade their forecasts for UK growth during 2024, following this morning’s news of 0.6% growth in January-March.

As Sky News’s Ed Conway points out, this is a welcome return to ‘trend growth’

Simon French of Panmure Gordon predicts this will trigger some growth upgrades:

With independent consensus for UK growth of 0.4% in 2024 – we are at 1.2% YoY – then Q1 24 growth of 0.6% means that economist upgrades will [begrudgingly] emerge over the coming days.

James Smith of ING suspects growth will only be slightly slower in the April-June quarter:

The bottom line is that the economy is entering a brighter period. The timing of the March bounce provides a nice starting point for the second quarter, where growth could easily come in at 0.4% or 0.5%.

Professor Costas Milas, of the University of Liverpool, has crunched the data, and tells us:

Today’s first estimate of 0.2%, q-on-q4 growth for 2024Q1 is higher than yesterday’s estimate of -0.1% produced by the Bank of England. This will create a momentum effect which is bound to lift next quarter’s growth from q-on-q4 growth of 0% (as estimated by the BoE) to something considerably higher.

Whether this momentum effect is able to generate additional inflation remains to be seen. As things stand, it is more likely than not that the Bank’s MPC will keep interest rates on hold in June. Needless to say, things might change until then!


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The stock market rally in London today has helped to lift the pan-European Stoxx 600 share index to a new alltime high.

Hopes of interest rate cuts in the eurozone in June, and a strong earnings season, are both lifting shares.

In Paris, the French CAC 40 has also hit a fresh record high this morning too (jumping 0.8% to 8256 points).


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The broad picture is that the UK economy is entering a period of stronger growth, says ING developed markets economist James Smith:

“The UK economy powered out of its technical recession in the first quarter, judging by the initial GDP figures released today. The economy expanded by a whopping 0.6% quarter-on-quarter.

Admittedly the data underlying that number has been pretty volatile. Some caution should be taken when interpreting these figures, just like the weaker numbers at the end of last year. Still, it tallies with other economic indicators which suggest the economy is entering a period of stronger growth. The purchasing managers indices are the most obvious example, and these are consistent with continued momentum in the second quarter. Even here though, there is some debate over whether the numbers are being artificially boosted by “residual seasonality” (i.e., not properly adjusting for seasonal trends after the pandemic).

UK exits its third recession in 16 years

The 2023 drop in GDP, now consigned to history, is the third UK recession in 16 years.

The contraction in the third-and fourth quarter of last year follows the slump in the first half of 2020 during Covid-19 lockdowns, and the contraction from spring 2008 to summer 2009 during the financial crisis.

This morning’s GDP data saw the strongest single quarter of growth since the end of the recovery from the pandemic (in Q4 2021). pic.twitter.com/hRc7eK4TPc

— Resolution Foundation (@resfoundation) May 10, 2024

James Smith, research director at the Resolution Foundation, says the recent frequency of recessions is a concern.

“The UK swiftly exited its latest recession in 2024 with the strongest economic growth since late 2021.

“But the wider backdrop is still worrying. Britain is falling into recession twice as frequently as it did in the second of the 20th century, and it remains a stagnation nation. These all-too regular shocks and slumps in between are reducing living standards and straining the public finances.

“The battle of ideas on how to change this record should be key during the election campaign.”

Where is the growth coming from?

The services sector mostly, with some growth in manufacturing.

(👷 Construction seems to have been hit by poor weather in Q1 🏗️) pic.twitter.com/0KYjvA1Saq

— Resolution Foundation (@resfoundation) May 10, 2024

Odds of June interest rate cut narrow

The odds of the Bank of England cutting interest rates next month have narrowed this morning.

The money markets indicate that a June rate cut, to 5%, is now a 48% chance, while there’s a 52% possibility that the BoE holds rates at 5.25%.

Yesterday, the decision was almost a coin-toss too, with a 55% chance of no-change in June.

On Thursday the BoE left rates on hold, with two policymakers voting for a cut but seven choosing not to ease policy.

Derek Halpenny, head of research for global markets at financial group Mitsubishi UFJ, says the BoE is inching toward a June rate cut

He told clients:

Most of the key guidance comments from [governor Andrew] Bailey and [deputy governor Ben] Broadbent in the press conference and again from Bailey in a Bloomberg TV interview after the press conference were clear in signalling rate cuts are coming.

Mostly notable was Bailey’s Comment that the monetary stance would “likely” need to be made less restrictive and “possibly more so than currently priced into market rates”. That comment really couldn’t be much clearer in signalling where the bias is shifting within the MPC and in our view strengthens the prospect of a June cut.

Moody’s Analytics: interest rates will constrain growth this year

High interest rates are likely to weigh on growth this year, even if we do get the two quarter-point cuts which markets expect.

Moody’s Analytics senior economist David Muir explains:

“With inflation moderating, the Bank of England is signalling that a rate cut is on the cards for the summer.

But first the Monetary Policy Committee needs further evidence that wage growth and price pressures within services are easing sufficiently. If that evidence builds quickly, a rate cut could come as soon as June, but we think August is the more likely date.

That said, even as rates are lowered, they will remain a constraint on the pace of economic growth through this year.”

Hunt: very difficult decisions are working….

Chancellor Jeremy Hunt is arguing that the UK’s GDP growth shows that the Government’s decisions are paying off.

He told Sky News this morning:

“We’re seeing that inflation is falling faster and I think people recognise it has been a very, very challenging period but they don’t vote for Conservative governments for us to do popular things, they trust is to do the right thing for the long-term benefit of the economy.”

He told Radio 4’s Today Programme that families who have been through “a really tough time” can see that the “very difficult decisions” taken to get the economy back on its feet after the pandemic and the energ shock” are working.

Hunt also claims that the UK’s longer-term prospects are strong – citing IMF forecasts for faster growth than France, Italy, Germany or Japan over the next six years.

Hunt also disputed that the Conservative’s reputation for economic competence had been crushed by Liz Truss’s mini-budget.

Hunt, who replaced Kwasi Kwarteng after the markets reacted very badly to the Truss administration’s package of unfunded tax cuts, concedes that mistakes were made, but that he corrected them within weeks.

Hunt says:

When interest rates and the prices people pay for mortgages have gone up all across the developed world following the energy shock caused by the invasion of Ukraine, it’s just wrong to attribute that to the mini-budget.

Hunt also predicted that mortgage rates are likely to start to fall, as inflation drops towards the UK’s 2% target – which could allow the Bank of England to lower interest rates.

Is Hunt right, though, that the mini-budget shouldn’t take the blame for the UK’s mortgage shock?

It is true that morgage rates have risen in the US, and in the eurozone, as central banks have tightened monetary policy by raising interest rates.

Looking back, the mini-budget triggered a massive selloff in government bonds – forcing the Bank of England to launch emergency action to halt a run on Britain’s pension funds.

More than two-fifths of Britain’s mortgage deals were withdrawn in the week after the mini-budget, as lenders rushed to reprice them, higher.

UK mortgage rates did fall in 2023, as the shock of the mini-budget subsided, but have been rising in recent weeks on concerns that interest rates might not be cut as soon as hoped (although the BoE suggested yesterday it could cut faster than expected).

So, even if the Truss shock has now dissipated, some unlucky mortage-holders who had to refinance their loan shortly after the mini-budget ended up paying much more…


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FTSE 100 hits 8,400 points amid GDP relief

Britain’s blue-chip share index has soared to another all-time high in early trading in London, amid relief that the UK’s recession is over.

The FTSE 100 index has jumped over the 8400 point mark for the first time, hitting a new intraday high of 8425 points – up 45 points this morning.

Mobile network operator Vodafone is the top riser, up 2%, after the UK cabinet office conditionally approved its merger with rival Three (although the competition authorities are yet to give their ruling).

Mining companies are also in the top risers, along with luxury goods maker Burberry (+1.7%), airline easyJet (+1.4%) and housebuilder Berkeley (+1.3%)

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says today’s growth report is lifting confidence:

The 0.6% growth registered in the first three months of the year was higher than forecast, with the green shoots seen in January and February flowering into a stronger growth spurt in March.

Confidence breeds more optimism, and with the economy showing signs of repairing and the FTSE 100 rallying higher, the glass half full sentiment is settling in. The blue-chip index has powered higher in early trade and set fresh records, after a sheen of positivity has descended on the UK.

The FTSE 100 has been on a strong rally since mid-April, and is on track for its third weekly rise in a row. It’s gained almost 9% so far this year.

Hopes that the economy was strengthening, and that interest rates will be cut this year, have both pushed up share values in London in recent weeks.

However, the FTSE 100 isn’t really a barometer of the strength of the UK economy, rather it is an outward-looking index comprising largely of multinational conglomerates.

Victoria Scholar, head of investment at interactive investor, says:

After the FTSE 100 hit a record high for the fourth straight session on Thursday, the UK index has opened higher yet again and is potentially on track to close at another all-time high.

Shares in Anglo American are up on a report that Rio Tinto also considered a bid following BHP’s rejected offer. M&A speculation is helping to keep Anglo shares supported at the moment.


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UK joint-fastest growing G7 country in last quarter

The UK has grown faster than many of its major rivals at the start of this year, as it emerged from recession.

The 0.6% growth recorded in January-March is faster than the US, where GDP rose by 0.4%, Germany (+0.2%), France (+0.2%) or Italy (+0.3%).

Out of the remaining G7 nations, Canada is estimated to have also grown by 0.6% in Q1, while economists predict Japan will have grown by 0.2%.

Since the pandemic, the UK is one of the slower-growing economies, today’s GDP report shows:

A chart showing G7 growth Photograph: ONS

Although Simon French, chief economist at Panmure Gordon, reports that the UK is in bronze medal position since 2016:


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Living standards recession over as GDP/head grows

Britain’s “living standards recession” is also, finally, over, after a two year squeeze.

Today’s GDP report shows that real GDP per head is estimated to have increased by 0.4% in the first quarter.

This measure of GDP per capita divides UK GDP by the total UK population, to get a more accurate view of how living standards are changing.

GDP per head had fallen steadily through 2023, and indeed hadn’t grown for seven quarters in a row.

Even after rising by 0.4% in January-March, GDP per head is estimated to be 0.7% lower than a year ago.

And for those who like GDP in per capita terms…. Although data comes with two health warnings. Is not standardised measure across G7 so this shouldnt be interpreted precisely. Also UK likely to be revised down later in 2024 as new (higher) population estimates are included. https://t.co/vMzWsYrCVI pic.twitter.com/ma7u7LZQgs

— Simon French (@Frencheconomics) May 10, 2024

TUC: One quarter of decent growth won’t make up for 14 years of “lost living standards”

TUC General Secretary Paul Nowak says:

“The UK economy has stopped shrinking. But one quarter of decent growth won’t make up for 14 years of lost living standards.

The Tories are still presiding over the worst period for economic stagnation and livelihoods in modern history.

Real wages are worth less than in 2008 and working people will end this parliament worse off than at the start.

Workers would be over £10,000 richer if pay had kept pace with its pre-crisis trend.

The Conservatives have succeeded only in making families poorer.”

Recession over: What the experts say

City experts are welcoming the news that Britain’s economy has returned to growth.

Richard Carter, head of fixed interest research at Quilter Cheviot, hopes that the UK’s economic stagnation will subside this year:

“With interest rate cuts seemingly pencilled in for the summer, the good news continues to flow for the UK as today’s data shows the UK is out of recession. The first quarter saw GDP grow by 0.6%, better than expected, as inflation has eased and the worst of the cost-of-living crisis is behind us.

The increase in GDP has primarily been driven by the UK’s strong services sector, which it has come to rely on in recent years to help push the economy forward.

“While growth remains fairly lacklustre compared to the likes of the US, this data shows this should be the year that economic stagnation subsides in the UK and the economy returns to consistent, if unspectacular, growth. It is the unspectacular nature of the growth, however, that is likely to be focus. While the very shallow and short recession appears over, there is a clamour for interest rate cuts to begin in order to stimulate growth and get business moving again. Markets await the first interest rate cut with bated breath, so it will be interesting to see the economic reaction once those rate cuts begin feeding through.

Yael Selfin, chief economist at KPMG UK, believes the worst is over, and that there will be continued growth for the rest of this year.

Falling inflation and real pay increases should help repair some of the damage to household incomes and support households’ consumption. Growth prospects have also improved in Europe, which could spur a recovery in exports.

“Despite the better near-term outlook, the improvement in GDP growth looks likely to be constrained by the ongoing weakness in productivity growth as well as reduced scope to increase employment levels. This could see annual GDP growth in the region of just 1% per year in the medium term.

“UK GDP grew by 0.4% in March, supported by a rise in services output which grew by 0.5%. Forward looking indicators point to further momentum in the coming months, consistent with our view that the worst is behind the UK economy.”

But… Suren Thiru, economics director of ICAEW, says the end of the recesion is a “rather hollow victory”, which could encourage the Bank of England to keep interest rates high for longer…

“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.

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.

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 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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