The health of the UK’s economy has been hanging on a precarious thread, and today’s GDP update was eagerly awaited by economists and government ministers after months of sluggish consumer confidence, weak manufacturing data, and the UK’s AAA credit rating taking a few knock backs.
However, the UK has avoided an unprecedented triple-dip recession after the economy grew by a better-than-expected 0.3% at the start of the year, official figures showed today.
The first estimate from the Office for National Statistics (ONS) means the UK has escaped its third recession since the financial crisis took hold in 2008, reversing a 0.3% contraction in the last three months of 2012. The figures also showed that GDP had risen by 0.6% when compared with the first quarter of 2012, the strongest year-on-year increase since the end of 2011.
The pick-up in GDP shows that the impact of the cold weather at the start of the year wasn’t as bad as feared. The snow may have hit high street retailers, but energy demand was boosted by households ramping up their heating.
GDP was also rescued by strong growth in the services sector, and particularly car sales, says the ONS. A bounce back in North Sea oil and gas production after a sharp decline in Q4 2012 was also a big factor in the GDP boost this quarter.
Breathing a sigh of relief at Number 11, Chancellor George Osborne said: ‘Today’s figures are an encouraging sign the economy is healing.’
However, although the rise in GDP is welcome, it should be pointed out that Britain’s economy is still 2.6% smaller than its peak in 2008, just before the credit crunch struck globally and put many countries into recession.
The ONS update is also only a preliminary estimate, and is likely to be revised in the next month or so. Ian Stewart, Deloitte’s chief economist, warns that ‘GDP growth is erratic and first estimates of growth are often prone to large revisions.’
He added: ‘The big picture is of an economy that has grown by just 0.4% in the last 18 months. The UK economy is past the worst, but the outlook is still for choppy, sluggish growth through the rest of this year.’