Finance & Economics

UK Economy Demonstrates Growth

In the United Kingdom, gross domestic product (GDP) showed an increase of 0.1% in February compared with the result for January.

UK Economy Demonstrates Growth

The mentioned information was released by the Office for National Statistics on Friday, April 12. The February data signals that the United Kingdom’s economic system is currently on a trajectory of gradual recovery. At the same time, it is worth noting that in this case there is a moderate increase, which does not correspond to the concept of an intensive process demonstrating significant changes in the indicator.

The February result coincided with the preliminary expectations of experts who were interviewed by the media. It is also worth noting separately that the GDP of the United Kingdom for the month before last decreased by 0.2% compared to the figure for the same period in 2023.

In the third and fourth quarters of last year, the UK economy contracted. Against the background of these results, London faced a new reality in the form of a technical recession. The current year for the time being is a more favorable period for the economic system of the United Kingdom. In January, the economy showed growth of 0.3%. It is worth noting that this indicator was revised upwards and published in the final version on Friday.

In January, an increase in construction output became a significant factor of positive stimulation for the economic system of the United Kingdom. At the same time, in February, the corresponding indicator fell by 1.9%. The largest contribution to GDP growth in the mentioned month was made by the production output. In February, the volume of manufacturing in the United Kingdom increased by 1.1%. In the UK service sector, the growth was 0.1% in the specified month. It is worth noting that in January, the positive dynamic in this segment of the United Kingdom’s economic system was 0.3%.

Paul Dales, chief UK economist at Capital Economics, stated in a note that the February data released on Friday practically confirms the end of the recession that began last year. At the same time, the expert said that the expected recovery is likely not to be strong enough to prevent inflation and interest rates from falling much further as appears to be happening in the United States.

In March, UK inflation was recorded at 3.4%. This indicator corresponds to an almost two-and-a-half-year low. It is worth noting that the slowdown in inflation in the United Kingdom turned out to be more significant than expected.

In the US, prices increased by 3.5% in March. The relevant data were released this week and turned out to be higher than forecasts. Against the background of the March result, expectations in the market have changed as to when the Federal Reserve will start cutting interest rates. Currently, the consensus forecast provides that the financial regulator of the United States will begin implementing a policy of lowering the cost of borrowing in September. It is worth noting that before the data for March were released, expectations were widespread that the Fed would start cutting interest rates in early summer.

There is also an intensive discussion about how the actions and decisions of the United States financial regulator will affect the policies of central banks in other countries. This issue will become more actual if the dollar strengthens.

Goldman Sachs on Friday revised its forecast on when the Bank of England will start cutting interest rates. Experts expect that the financial regulator of the United Kingdom will begin implementing the relevant policy in June. In their opinion, the intensity of the lowering of the cost of borrowing will slow down to a quarterly pace over time.

Simon French, chief economist at Panmure Gordon, said during a conversation with media representatives that the Bank of England is an independent organization, but at the same time, as part of making decisions about its action strategy, it is likely to take into account such factor of external space as the national elections in the United Kingdom, which are expected to take place in the second half of 2024. According to the expert, there is currently quite strong pressure on the financial regulator from the governing party. Simon French also noted that the chancellor officially stated in the public space the fact of the expectation of cutting interest rates.

The expert says that the February data are convincing evidence of the end of the recession. It is worth noting that it is too early to conclude the steady change in the dynamic of the economy of the United Kingdom.

Currently, the rate of economic growth in the UK is lower than that observed before the coronavirus pandemic. Also, the intensity level of the corresponding process is lower than those figures that are recorded in the United States. At the same time, the pace of economic growth in the UK corresponds to the dynamic that is observed in Europe. Currently, in the United Kingdom, the most intensive recovery is recorded in the manufacturing industry and the automotive production area.

Forecasters from the National Institute of Economic and Social Research say that the recession in the UK is currently reflected in the rearview mirror. In their opinion, for the entire first quarter of 2024, the GDP of the United Kingdom will show growth of 0.4%.

As we have reported earlier, UK Retail Sales Demonstrate Positive Dynamic.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.