The UK has “recovered ground lost” during 2023’s recession with the economy expected to grow this quarter, according to new forecasts
Pantheon Macroeconomics has upgraded its gross domestic product (GDP) growth projection for Q1 to 0.4 per cent, quarter-to-quarter.
Last week, figures from the Officer for National Statistics (ONS) revealed GDP jumped by 0.1 per cent for February.
The economics company anticipates continued growth of 0.3 per cent which surpasses the Bank of England’s 0.1 per cent projections.
Robert Wood, the chief UK economist at Pantheon Macroeconomics, explained: "We raise our Q1 growth forecast to 0.4 per cent quarter-to-quarter after last week’s GDP data."
"That would comfortably beat the MPC’s projection of 0.1 per cent growth in both quarters. The stance of monetary policy could remain restrictive even if Bank Rate were to be reduced.
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The UK could be putting its recession woes behind it, according to new forecasts
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"GDP in February reached the average level seen in Q2 2023, meaning the economy has already recovered the ground lost during last year’s recession."
A recession is defined as happening when a country’s economy experiences two consecutive quarters of negative economic growth, which the UK fell into towards the end of last year.
After January and February GDP figures signalling improvements in the economy, March's figures would need to show a drop of 1.29 per cent for Q1 2024 to be negative.
The drop in GDP last year has been primarily blamed on manufacturing output taking a hit in the last quarter with the sector being forced to contend with high inflation and interest rates.
However, recent developments suggest these two factors are also improving which could signal further GDP growth this year.
Today’s ONS figures found the country’s unemployment rate rose to 4.2 per cent for the three months of February 2023.
This is the highest level since August 2023 which experts from the National Institute of Economic and Social Research (NIESR) claim is indicative of a cooling in the labour market.
Based on this, analysts suggest this could push the Consumer Price Index (CPI) rate of inflation to ease further in the months ahead.
As such, the central bank would be more likely to cut rates quicker in the near future after raising the base rate to 5.25 per cent in its fight against inflation.
Despite this, the Bank of England is being urged to exercise “caution” when it comes to interest rates following today’s unemployment figures.
NIESR is recommending the Bank is careful in any decision-making it makes over interest rates despite this development.
According to experts, the cooling impact of high interest rates is leading to more redundancies and less staff openings which is helping ease the CPI rate.
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The UK slipped into a shallow recession towards the end of last year
GETTYDespite today’s ONS unemployment stats, regular pay growth excluded bonuses jumped to six per cent over the period.
This was higher than the 5.8 per cent rate forecast by economists polled by Reuters and signals the issue the Bank of England faces over interest rates. Total pay, including bonuses, remained at 5.6 per cent compared to the last quarter, the ONS figures revealed.
Monica George Michail, an associate economist at the NIESR, cited the “caution” required by the central bank before it begins cutting rates.
She explained: “Today’s ONS figures show that annual growth in average weekly earnings was 5.6 per cent (six per cent excluding bonuses) in the three months to February.
“Whilst this figure is above historical norms and prompts caution for the Bank of England regarding interest rate cuts, the rise in the unemployment rate indicates that the labour market continues to cool, which could alleviate inflationary pressures.”