Industry professionals react to latest UK GDP figures

by | May 10, 2024

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UK GDP figures have been released this morning, confirming a 0.6% rise in Q1 which hints at UK economy rebounding after posting its best quarterly performance in over a year.

Following this announcement, industry professionals from the financial services sector have shared their thoughts on what it could mean going forward.

Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services: “This morning’s GDP data by the ONS, though less than exciting at first glance, gives further confirmation that the UK economy has successfully pulled away from the shallow contraction experienced over the second half of 2023.

 
 

“Record-breaking wet weather dampened construction activity over the final month of Q1, but survey evidence confirms that this hiatus is only temporary. More importantly, service sector activity expanded for a second consecutive month. While industrial and manufacturing activity in March did not match February’s strong gains, the sector continues to deliver encouraging growth.

“On balance, today’s data confirms that while the UK’s economy is far from firing on all cylinders just yet, ongoing improvements in consumer and government spending, buoyed by trade is certainly supports the cautiously optimistic outlook evidenced by more recent business surveys. Should this trend continue, it would lead to improved business and household optimism. Additionally, the strong likelihood of the Bank of England fostering optimism by cutting interest rates next month also points to a brighter future over the months to come – and just in time for summer.”

Andrew Oxlade, Investment Director at Fidelity International comments on the latest UK GDP figures: “It’s official – the very brief recession of late 2023 is over. The economy grew by 0.6% in the first three months of the year, stronger than the 0.4% that was expected.

 
 

“It’s reason for some cheer, with the economy growing at its fastest rate since 2021 and now growing at a similar pace to the US and Europe. But it’s perhaps a little early to call this a return to long-term growth rates. The recovery is likely to be painfully slow from here – the Bank of England expects the economy to register annual growth of only 1% for the full year of 2024. 

“What the economy needs is lower rates to ease the burden on businesses and help mortgage borrowers and would-be house buyers. Rates were held again yesterday with a signal from the Bank that a cut next month was a real possibility with inflation likely to drop below the 2% target. However, the stronger than expected GDP figures will weigh on that decision.

“Today’s figures also showed a slump in the construction industry, with the sector contracting 0.9% in the first quarter. This is unsurprising given that house prices have remained flat in the past year. The response from individual investors is to remain cautious. Our own data shows that cash funds, regarded as low risk and which pay high income, remain unusually popular. It is another reminder that the mood remains one of caution.”

 
 

Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “Encouragingly, the UK’s economic growth seen so far this year is broad based across both manufacturing and services. Meanwhile, confidence among both businesses and consumers has grown. Having battled the impact of stubborn inflation and high interest rates, many households are now starting to reap the benefits of inflation falling more rapidly than wage growth.

“Recent cuts to National Insurance and the planned increase in the National Living Wage also stand to offset the headwind of restrictive higher interest rates. This boost to spending power bodes well for some further modest growth in the coming months. 

“Yet it’s still a lacklustre situation. Zooming out to the bigger picture, the economy is likely to continue to tread a steady but underwhelming path and requires productivity gains to set it on a steeper growth trajectory.

 
 

“It’s also unclear how much of the upturn in economic activity we have seen this year emanates from an expectation that interest rates will fall away relatively quickly. As those hopes have now been all but dashed the handbrake on confidence and growth may be reapplied.

“The small uptick in growth seen this year is neutral for interest rates. It will neither alarm the Bank of England that rates are too restrictive nor cause it concern that the economy is too hot and unduly stoking inflation. That probably means the Bank sitting tight in the short term.

“The first reduction in UK interest rates from 5.25% will probably occur in August and there could be one, maybe two, further cuts this year. This will be seen from the BoE’s point of view as moderately restrictive still, and an appropriate balance given the need to both ensure the downtrend in price rises continues and provide a platform to cut more quickly in the event of an economic slowdown. 

 
 

“It is not yet clear the underlying causes of inflation are vanquished, especially given continued tightness in the labour market. As the year progresses favourable base effects will diminish, and we could even face a ‘second coming’ of inflation, especially if the US economy stays strong, which would serve to limit rate cuts there and cement dollar strength. The BoE can cut before the Fed, but it will be limited as to far it can go if the US doesn’t follow suit.

“The Bank will therefore want to see a more substantial cooling in wage increases, and in more sticky services inflation, before reducing rates. Although the economy is hardly rocketing it is strong enough to keep these things tight, helping maintain upward pressure on prices.”

David McCreadie, the CEO of Secure Trust Bank, said: “The UK economy grew by 0.6% in Q1 2024, signalling the official end of the (mild) technical recession. The robust growth, exceeding expectations, was chiefly led by the service sector and industry, recording 0.7% and 0.8% growth respectively, while construction experienced a decline of 0.9%.

 
 

“The momentum in the service sector and production highlights strong consumer activity, buoyed further by government expenditure. The growth trajectory is evident in the monthly data as well, with GDP rising by 0.4% in March, a revised upward figure of 0.2% in February, and 0.3% in January.

“Today’s GDP figures, coupled with inflation edging towards 2%, indicate a turning point for the economy. However, it is imperative to acknowledge that growth forecasts anticipate the economy to plateau. Attention now shifts to the Bank of England, given the sustained pressure on households and businesses stemming from elevated interest rates. A rate cut would provide an added impetus to the economy by reducing borrowing costs for businesses.”

Danni Hewson, head of financial analysis at AJ Bell, comments: “The UK has charged out of what will go down in the history books as the shortest, shallowest recession on record. After months of floundering around a flatline, growth of 0.6% will give the UK economy a real confidence boost. 

 
 

“Services and manufacturing have helped offset ongoing challenges being faced by the construction sector. Not only has it been dampened by real life downpours, but the Bank of England’s continued rate pause has softened demand from would-be homeowners whilst changing working habits have pushed businesses to rethink their office requirements. 

“Falling inflation and rising wages have given households a bit more in the tank and they’ve upped their spend, something that will need to continue if the trajectory is to be maintained. 

“Andrew Bailey painted a bucolic picture of a recovering economy which will be further boosted by any rate cut tailwinds. But the resilience being demonstrated by most sectors could be seen as a reason for MPC members to keep their finger on the pause button for a little while longer. 

 
 

“We’ve not yet seen the impact of the cut to National Insurance or the increase in the national minimum wage on consumer spending patterns and there have been plenty of businesses making it crystal clear that increased wage costs would have to be passed on. 

“Those green shoots we’ve heard so much about since the start of the year have sprouted nicely, but it will only take one spring storm to damage the burgeoning flowers.”

Ben Laidler, Global Markets Strategist at eToro says: “The UK recession has ended, with the green shoots of economic recovery the strongest they have been in over two years. Encouragingly, recovery spanned across sectors from manufacturing to services.

 
 

“GDP grew a greater-than-expected 0.6% in the three months to March, rebounding from the 0.3% contraction at the end of last year. The recovery has been led by rebounding business investment and manufacturing. 

“The stronger economy comes alongside the outlook for summer interest rate cuts and the recently weaker pound. This has been driving a long awaited relief rally in the overlooked FTSE 100, as well as providing some political relief in Downing Street.”

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