Recent data from the Office for National Statistics (ONS) has revealed that the UK’s exit from recession in the first quarter of the year was stronger than initially estimated. The gross domestic product (GDP) rose by 0.7% between January and March, higher than the previously reported 0.6% growth. This positive figure marked the end of a shallow recession that plagued the country during the latter part of 2023.
The growth in the economy during the January-March period was primarily driven by the services sector, which makes up nearly 80% of the economy. However, in a more recent update, the ONS reported zero growth for the month of April. The poor weather conditions negatively impacted both construction and high street activity during this period.
The COVID-19 pandemic and the energy-driven cost of living crisis have significantly impacted the UK economy and the personal finances of its citizens. As the country approaches a general election on 4 July, economic issues like growth, inflation, and the cost of living are at the forefront of voters’ concerns.
The recent policy meeting of the Bank of England’s rate-setting committee resulted in a 7-2 decision to maintain the Bank rate at 5.25%. The central bank remains cautious about the pace of wage growth and persistent inflation within the services sector. There are concerns that raising interest rates could further fuel price growth, especially as basic salaries are rising at a rate of 6%.
Despite the gap in favor of consumers, where wage growth has outpaced inflation since June of the previous year, organizations like the Resolution Foundation have highlighted the challenges faced by households. Real household disposable incomes were reported to be lower in early 2024 compared to late 2019, indicating a decline in living standards.
As the UK economy continues its path to recovery, there are still uncertainties looming on the horizon. The Bank of England’s financial stability report raised concerns about the impact of higher interest rates on mortgage holders. With three million mortgage holders yet to experience the effects of increased repayments, the road ahead remains unpredictable.
Financial markets and economists are eyeing potential rate cuts in either August or September, as the Bank of England aims to support economic recovery. The timing of any rate cut has been impacted by the upcoming general election, with the central bank striving to maintain its independence amidst political pressures.
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