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More than two-fifths of Britain’s mortgage deals were withdrawn in the week after the mini-budget, as lenders rushed to reprice them.
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).
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.
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:
Although Simon French, chief economist at Panmure Gordon, reports that the UK is in bronze medal position since 2016:
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.”
he UK is also expected to be the worst-performing economy in the G7 next year. Still, these forecasts are there to be beaten…. the 0.6% growth recorded in the last quarter is stronger than people expected.
Compared to recent figures, we last saw growth this strong in the last quarter of 2021, McKeown explains.
McKeown pointed to the pick-up in service sector growth, but also pointed out that construction shrank – due to a decline in new work.
McKeown says:
“After two quarters of contraction, the UK economy returned to positive growth in the first three months of this year.
“There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well. Car manufacturers also had a good quarter. These were only a little offset by another weak quarter for construction.
“In the month of March the economy grew robustly led, again, by services with wholesalers, the health sector and hospitality all doing well.”
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by 0.3% in October-December as consumer spending slumped, triggering the technical recession declared earlier this year.
Analysts are expecting to learn that UK GDP rose by around 0.4% in the January to March quarter, which would consign the recession to history.
Recent falls in inflation, and hopes that interest rates will be cut this summer, are supporting the economy. Previous data has shown that GDP rose by 0.1% in February, and 0.3% in January.
Deutsche Bank’s chief UK economist, Sanjay Raja, says:
The UK economy likely shrugged off the short and marginal technical recession it fell into last year. After contracting by 0.3% q-o-q in Q4-23, we expect the economy to bounce back, expanding by 0.4% q-o-q in Q1-24 with March GDP rising by 0.1% m-o-m.
What’s driving the recovery? In short, some positive payback with household spending bouncing back to start the year. Government investment too will have likely supported GDP through the first quarter. And we think some build up in inventories will have also helped push GDP higher in Q1-24. In short, we expect Q1-24 to signal a sustained recovery back to trend growth.
Where to now? We expect 2024 GDP to expand by 0.5%. There are some upside risks to our projection, given the continued strength of business activity data.
The agenda
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7am BST: UK GDP report for March, and the first quarter of 2024
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7am BST: UK trade report for March
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12.30pm BST: European Central Bank to release accounts of its last monetary policy meeting
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3pm BST: University of Michigan’s survey of US consumer sentiment
Source: theguardian.com
