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Britain’s Economy Ekes Out Growth in First Quarter

The News

The British economy grew 0.1 percent in the first three months of the year, from the previous quarter, the Office for National Statistics said on Friday. It matched the slow pace of growth in the last quarter of last year.

The weak expansion was driven by activity in construction as well as gains in information and communication services, a group that includes computer programming and consultancy. But most other sectors in the service industry declined, including hospitality and food, health and education.

Strike action weighed on the economy, as doctors, civil servants, teachers and rail workers walked off the job to protest low pay and other working conditions.

A butcher’s shop in London’s Borough Market. Sectors in the services industry, including hospitality, declined in the first quarter.Credit…Sam Bush for The New York Times

Why It Matters

The small expansion has cemented the improved outlook for Britain’s economy. Late last year, there were fears of a recession, but since then, wholesale gas prices have fallen substantially, and the economy has fared better than expected. Instead of a recession through the winter, Britain has recorded two consecutive quarters of growth.

It offers some good news amid a deep cost-of-living crisis, as household budgets have been stretched by a year of inflation in or near the double digits. In March, the annual inflation rate was 10.1 percent.

Alongside falling energy prices, businesses and households have shown some resilience to the challenging economic circumstances. In particular, employers have held on to workers after previous hiring proved difficult, and they tried to find other ways to cut costs as their expenses rose.

But this data can bring only limited comfort. With just 0.1 percent growth, Britain’s economy is still sluggish and slightly smaller than it was at the end of 2019, before the coronavirus pandemic.

The data shows Britain is in “a period of virtually no growth,” David Bharier, head of research at the British Chambers of Commerce, said in a statement. “The core issues affecting British businesses, such as unprecedented inflation, energy price shocks, and record tightness in the labor market, have not gone away.”

Background

Weak growth is not unique to Britain. The rest of Europe is also still reeling from the war in Ukraine, the shock to energy prices and soaring food prices. The eurozone economy also grew just 0.1 percent in the first quarter of this year.

Although gross domestic product data provides a useful overview of how the economy is performing as a whole, it masks the different experiences of households and businesses. A long period of lackluster growth and high inflation hasn’t been felt equally across Britain.

The poorest 20 percent of households have seen a 20 percent drop in their living standards compared with prepandemic levels, which means they are worse off by about £4,000 ($5,000) a year, according to the National Institute of Economic and Social Research. By comparison, the wealthiest fifth have only experienced a 5 percent decline in their living standards.

What’s Next

Even though Britain’s economic outlook has improved, it’s hardly bright.

On Thursday, the Bank of England said it expected the economy to essentially flatline through the first half of this year before growing more substantially beginning inthe summer. In the current quarter, strike action and the additional public holiday for the coronation of King Charles III will weigh on the G.D.P. data. For 2023, the country will average 0.25 percent growth, the bank predicted, as the impact of 12 consecutive interest rates increases are felt through the economy. Growth will only increase to 0.75 percent for 2024 and 2025, the bank forecast.

As the year goes on, British households should benefit from lower wholesale energy prices, which will begin to bring down the cost of energy bills. But there isn’t expected to be much relief from high food prices. In March, food inflation was nearly 20 percent, the highest in more than 45 years. This week, the central bank said there was no expectation that food prices would decline in the near term, only that the rate of inflation would slow, and even then it would be at a more gradual pace than previously expected.

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