The economy returned to growth in January when GDP rose by 0.2%, latest official figures show.
The Office for National Statistics (ONS) on Wednesday said that the dominant services sector led the economy out of the mild recession of the second half of last year.
The figure was in line with City expectations and is unlikely to impact forecasts that the first interest rate cut from the Bank of England will come in June.
Although welcome it was only second increase in GDP in the past seven months underlining how the UK economy is struggling to gain any forward momentum.Services output, which accounts for around 80% of the total, grew by 0.2% in the month. A bounce back on the high street was a major contributor with retail sales growing 3.4% after a dismal Christmas.
However the production sector, which include manufacturing, saw output fall by 0.2%. But there was a strong recovery from the construction sector which grew by 1.1%
ONS Director of Economics Statistics Liz McKeown said: “The economy picked up in January with strong growth in retail and wholesaling. Construction also performed well with housebuilders having a good month, having been subdued for much of the last year.
“These were partially offset by falls in TV and film production, lawyers and the often-erratic pharmaceutical industry.
“Over the last three months as a whole, the economy contracted slightly.”
Chancellor of the Exchequer Jeremy Hunt said: “While the last few years have been tough, today’s numbers show we are making progress in growing the economy - part of which makes it possible to bring down national insurance contributions by £900 this coming year. But if we want the rate of growth to pick up more we need to make work pay which means ending the unfairness of taxing work twice.”
The recovery comes after the UK fell into a shallow recession in the second half of last year as high interest rates and the cost of living crisis sent GDP falling 0.3% in the final quarter of the year having dipped by 0.1% in the third quarter. A recession is defined as two consecutive quarters of negative growth.
Delivering economic growth had been one of Rishi Sunak’s key pledges made at the start of 2023.
Ruth Gregory, deputy chief UK economist at forecasters Capital Economics said: “The news that the economy expanded by 0.2% in January suggests the UK economy may already have moved out of recession and implies there is some upside to our 2024 GDP growth forecast of 0.0%.”
Sanjay Raja, chief UK economist at Deutsche Bank, said: “The economy is starting to turn a corner. The technical recession that the UK slipped into late last year will be short-lived. And we should see growth gradually return to its trend rate over the course of the year, as sentiment continues its uptrend and fiscal and monetary policy loosen through 2024.”
