GDP grows by 0.6% – industry reaction

The UK economy grew by 0.6 per cent in the first quarter of the year, the fastest rate of growth in a year, according to the Office for National Statistics (ONS).

Growth was driven primarily by the services sector, which rose 0.8 per cent over the period. The ONS data also reported that GDP grew 0.3 per cent in March, outperforming economists’ expectations amid concerns that the war in Iran would weigh on activity.

Commenting on today’s GDP figures for Q1, ONS Director of Economic Statistics Liz McKeown said, “Growth picked up in the first quarter of the year, led by broad-based increases across the services sector. Within that wholesale, computer programming and advertising performed particularly well.

“Production also grew slightly, while construction returned to growth, though only partly reversing weakness at the end of last year.”

Anna Leach, Chief Economist at the Institute of Directors, said, “Economic growth for the first quarter came in at a fairly punchy 0.6%, buoyed by some recovery in consumer and business spending following a weak final quarter last year. But there were early reports of turnover in some sectors being negatively affected by the outbreak of conflict in the Middle East – including in manufacturing, wholesale and accommodation. These are some of the sectors most exposed to geopolitical risk, with high vulnerability to energy costs and often complex global supply chains. There were also some signs of stockpiling in a handful of sectors – we had already seen in retail sales data for March that fuel sales picked up. This activity may soften the initial impact from the crisis.

“As the conflict drags on, the government’s narrative in the King’s Speech rightly focused on economic security, including sovereign capabilities in steel, improving infrastructure, market conditions and regulations. Energy security was rightly there too, although a plan to maximise the benefits from UK oil and gas fields remains worryingly absent. As energy costs rise, swift action is needed to address the other costs businesses face – reducing regulatory burdens and speeding up policy decisions can play a role in driving a more resilient economy.”

Suren Thiru, ICAEW Chief Economist, said, “These figures suggest a refreshingly resilient first quarter for the economy, though March’s surprisingly strong outturn is flattered somewhat by businesses bringing forward activity to guard against the turmoil triggered by the Iran war.

“While rising consumer spending and business investment suggest that some activity was revived as uncertainty eased following November’s Budget, the financial squeeze unleashed by the conflict means this improvement is likely to be short-lived.

“This strong first quarter is probably the high point for the economy this year with output likely to halve in Q2 as surging energy costs suffocate activity, despite a short-term boost from firms stockpiling in anticipation of shortages and price rises.

“A prolonged period of domestic political instability would cast another dark cloud over the UK’s economic outlook by further denting confidence and increasing financial market turbulence, likely resulting in notably weaker spending and investment.

“Though these figures may reinforce the more hawkish stance among rate-setters caused by the Iran war, a June rate rise still looks unlikely given lingering uncertainty over the conflict’s impact and hope that a weaker economy will eventually help limit inflation.”