UK economy rises above pre-Covid levels despite failing to grow in February

The UK financial system has lastly risen above its pre-pandemic ranges, revised information reveals, as prospects enhance that progress beat official forecasts for the primary three months of 2023, regardless of flatlining in February.

Gross home product was unchanged between January and February, following a revised 0.4 per cent enlargement within the earlier month, the Workplace for Nationwide Statistics mentioned on Thursday.

February’s studying, which was closely impacted by strikes within the companies sector, was under the 0.1 per cent enlargement forecast in a Reuters ballot.

Nonetheless, due to revisions to information on earlier months, the British financial system ended the month 0.3 per cent greater than it was in February 2020, earlier than the primary Covid-19 restrictions. In January 2023, the ONS estimated that the financial system was nonetheless 0.2 per cent under that degree.

The rise above pre-pandemic ranges was “an accomplishment that needs to be celebrated”, mentioned Ellie Henderson, economist at Investec, though it nonetheless compares poorly with different superior economies.

Within the final three months of 2022, the most recent for which information is accessible, the US financial system was 5 per cent greater than it was within the ultimate quarter of 2019, whereas eurozone output expanded by 2.4 per cent over the identical interval.

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Many analysts mentioned Thursday’s information meant the financial system was unlikely to have contracted within the first quarter, as forecast by the Financial institution of England and the Workplace for Price range Duty. Just a few weeks in the past, the fiscal watchdog mentioned British output would shrink by 0.4 per cent within the first three months of this yr.

Responding to the figures, chancellor Jeremy Hunt mentioned the financial outlook was “wanting brighter than anticipated”, including: “We’re set to keep away from recession due to the steps we have now taken by way of an enormous bundle of price of dwelling help for households and radical reforms to spice up the roles market and enterprise funding.”

Paul Dales, chief UK economist at analysis group Capital Economics, mentioned the probably avoidance of a recession within the first quarter boosted the possibilities of the BoE elevating rates of interest once more to damp demand and cut back inflation, now at 10.4 per cent, to its 2 per cent goal.

Markets are break up between the central financial institution’s Financial Coverage Committee elevating its base charge by 0.25 proportion factors at its subsequent assembly on Could 11 or leaving charges at 4.25 per cent.

“The general sense is that the financial system remains to be proving resilient to the dual drags of excessive inflation and excessive rates of interest,” mentioned Dales.

The ONS mentioned that output within the companies sector dipped by 0.1 per cent in February, largely due to strikes in schooling and public administration. Output in schooling fell 1.7 per cent, whereas public administration registered a 1.1 per cent drop.

Unseasonably gentle climate in contrast with January led to falls in the usage of electrical energy and fuel, whereas the development sector grew by 2.4 per cent.

Output in consumer-facing companies, reminiscent of eating places, retailers and hairdressers, additionally posted a 0.4 per cent enlargement.

Yael Selfin, chief economist on the consultancy KPMG UK, mentioned that, whereas the UK financial system was “more likely to escape recession” this yr, the medium-term outlook remained “comparatively weak by historic requirements”.

Martin Beck, chief financial adviser to the consultancy EY Merchandise Membership, predicted that the financial restoration would “achieve traction” within the second half of 2023, boosted by “falling family vitality payments and the influence of the fiscal loosening introduced within the Price range”.

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