Economic overview

UK economy bounces back

The Office for National Statistics (ONS) reported that Gross Domestic Product (GDP) grew by 0.6 percent in Q1 2024. This more than eradicated the contraction in output in both Q3 and Q4 2023. As reported in our Q1 UK market intelligence report, the consensus was for a mild and short-lived downturn.

The Q1 data is better than the consensus forecasts of 0.4 percent and ended the recession that the UK entered in the second half of last year. It also marks the strongest expansion in over two years.

The big contributors to Q1 GDP growth were services output, rising 0.7 percent, and the production sector which grew by 0.8 percent, with manufacturing making the largest contribution. While the construction sector output fell by 0.9 percent in Q1, this was impacted by adverse weather in February.

The consensus of forecasts is for GDP growth of 0.6 percent this year, 1.2 percent in 2025 and 1.7 percent in both 2026 and 2027.

Source: Office for National Statistics

Inflation edging towards the 2.0 percent target

UK CPI inflation data fell to 2.3 percent on the year in April, down from 3.2 percent in March. This left CPI slightly above the consensus forecast of 2.1 percent, but it nevertheless marked the lowest rate of inflation since September 2021.

The decline in the April inflation rate was widely expected, due to the reduction in the Ofgem energy price cap.

The core CPI measure, which excludes the volatile energy and food prices, dipped to 3.9 percent from 4.2 percent. Within this, services inflation fell to 5.9 percent from 6.0 percent in the same period.

Bank Rate unchanged

The Bank of England (BoE) Monetary Policy Committee’s (MPC) latest announcement saw it leave the Bank Rate unchanged at 5.25 percent, consistent with market expectations. However, there were indications that the MPC may deliver a first cut in Bank Rate in the current cycle.

In response, financial markets are expecting a first rate cut during this summer.

Unemployment on the incline, but wage growth still high

Employment fell by 178,000 people over the three months to March, while the unemployment rate rose to 4.3 percent from 4.2 percent as expected. Regular pay growth, however, was unchanged at 6.0 percent, compared with market expectations for a fall to 5.9 percent.

It should be noted the pay growth data came before the rise in the National Living Wage was implemented in April.

Key confidence indicator shows more optimism

The Standard & Poor (S&P) Global UK Purchasing Managers’ Index (PMI) Composite Index rose to 54.1 in April 2024, marking the sixth consecutive month of positive performance.

This expansion represents the fastest growth in private sector business activity since April 2023. The service sector outlook remained positive with a PMI of 55, however, manufacturing production dipped slightly to 49.1. Service providers reported a quicker rise in order books, while goods producers saw a decline.

Source: CIPS/S&P Global