Economic output grew in the first quarter, confirming that the UK recession was short-lived and signaling a gradual end to the cost of living crisis.
The UK economy grew by 0.6% between January and March, according to official figures. Investors responded by pushing the FTSE 100 to new heights, rising more than 40 points to 8,422.64.
Chancellor Jeremy Hunt praised the data, which will give the Conservatives a boost after another difficult week.
He said: “There is no doubt it has been a difficult few years, but today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic.
“We are growing this year and have the best prospects among European G7 countries for the next six years, with wages growing faster than inflation, falling energy prices and £900 tax cuts for the worker average that will affect bank accounts.
Rachel Reeves, Labour’s shadow chancellor, said: “This is not the time for Conservative ministers to do a victory lap and tell the British people they have never had it so good. “The economy is still £300 smaller per person than when Rishi Sunak became Prime Minister.”
However, another positive message came from Scotland’s small business sector, which is at its most optimistic for two years.
He Small Business Federation said its small business index for the first quarter of 2024 reflected rising consumer spending and overall economic growth.
Despite this, he warned of persistent challenges facing smaller businesses, as many reported declines in revenue and staffing levels.
More than a third of respondents (34.8%) expect their performance to improve in the next quarter, while less than a quarter (24.1%) believe it will deteriorate.
Andrew McRae, policy chair at FSB Scotland, said: “It is very welcome that we are starting to see the first green shoots of economic recovery, with almost two in five small businesses in Scotland planning to expand next year.”
Ben Jones, IWC The chief economist said: “Consecutive increases in output during the first months of this year suggest the UK is now on the road to recovery.
“But a consumption-led recovery could prove short-lived if more decisive action is not taken to address the long-standing problem of weak productivity growth, which ultimately sets the UK’s economic speed limit.
“Businesses want to see actions that can help support investment and reduce costs, including extending full spend to leased and leased assets, and a business tax roadmap to give businesses the certainty and confidence they need to Plan ahead and invest in a vibrant UK economy. .”
Interest rate cut ahead
The Bank of England Yesterday they maintained interest rates and indicated that a cut is coming, either at its next meeting in June, but possibly in August once it believes inflation has been brought under control.
Members of the Bank’s Monetary Policy Committee (MPC) voted by a majority of 7 to 2 to keep the bank rate at 5.25%. It was the sixth consecutive decision that was upheld.
Swati Dhingra and Dave Ramsden voted to reduce the rate by 0.25 percentage points, to 5%.
Andrew Bailey, governor of the Bank of England, said: “We have received encouraging news about inflation and we believe it will fall close to our 2% target in the coming months.
“We need to see more evidence that inflation will stay low before we can reduce interest rates. “I am optimistic and I believe things are going in the right direction.”
He told a news conference that the “major global shocks” that caused inflation to rise have “faded.”
He added that he expects the drop in energy prices to show that inflation fell further in April, but warns that the Bank will examine future publications on price increases (there are two before June) “to make sure that inflation drop up to 2”. % aim and stay there.”
The Bank added that “there remains considerable uncertainty around the statistics derived from the ONS Labor Force Survey” and “it is therefore more difficult to measure developments in the labor market.”
The Institute of Directors said it was “disappointed” by the Bank’s decision to leave rates on hold, saying two-thirds of respondents wanted a cut this month.
“The UK economy remains fragile… [and] “Inflation is forecast to decline sharply in the coming months,” said Roger Barker, its policy director. “In our view, these conditions would have justified an early interest rate cut.”
Anna Leach, deputy chief economist at the CBI, said the decision to leave rates on hold is in line with the CBI’s expectation that the MPC wants to see more evidence that past falls in domestic inflationary pressure are sustainable before taking steps to cut rates.
“Services and wage inflation data suggest a cautious approach is warranted. Inflation in the service sector is triple the inflation target and average earnings growth is still around double the rate consistent with the inflation target.
“It is noteworthy that the Bank believes that demand growth will trail supply growth in the coming years. Overall, today’s release does not change our view that the first rate cut will most likely occur in August.”
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said that since the last MPC meeting, headline and core inflation have declined, and the downward trend is expected to continue.
“April CPI data on May 22 is expected to show that price increases have fallen sharply, setting the stage for rate cuts next month,” he said.
“Although the labor market has shown signs of easing, providing additional stimulus to the MPC, the potential inflationary consequences of a rate cut continue to worry some rate setters.
“The committee therefore remains divided on the way forward, with some finding the pace of deflation still too slow for comfort.”