The UK economy has finally risen above its pre-pandemic levels, revised data shows, as prospects increase that growth beat official forecasts for the first three months of 2023, despite flatlining in February.
Gross domestic product was unchanged between January and February, following a revised 0.4 per cent expansion in the previous month, the Office for National Statistics said on Thursday.
February’s reading, which was heavily affected by strikes in the services sector, was below the 0.1 per cent expansion forecast in a Reuters poll.
However, thanks to revisions to data from previous months, the UK economy ended the month 0.3 per cent bigger than in February 2020, before the first Covid-19 restrictions were introduced. In January 2023, the ONS estimated that the economy was still 0.2 per cent below that level.
The rise above pre-pandemic levels was “an accomplishment that should be celebrated”, said Ellie Henderson, economist at Investec, although it still compares poorly with other advanced economies.
In the last three months of 2022, the latest for which data is available, the US economy was 5 per cent bigger than it was in the final quarter of 2019, while eurozone output expanded by 2.4 per cent over the same period.
Many analysts said Thursday’s data meant the economy was unlikely to have contracted in the first quarter, as forecast by the Bank of England and the Office for Budget Responsibility. Only a few weeks ago, the fiscal watchdog said British output would shrink 0.4 per cent in the first three months of this year.
Responding to the figures, UK chancellor Jeremy Hunt said the economic outlook was “looking brighter than expected”, adding: “We are set to avoid recession thanks to the steps we have taken through a massive package of cost of living support for families and radical reforms to boost the jobs market and business investment.”
Paul Dales, chief UK economist at research group Capital Economics, said the likely avoidance of a recession in the first quarter boosted the chances of the BoE raising interest rates again to damp demand and reduce inflation, now at 10.4 per cent, to its 2 per cent target.
Markets are split between the central bank’s Monetary Policy Committee raising the base rate by 0.25 percentage points at its next meeting on May 11 or leaving it at 4.25 per cent.
“The overall sense is that the economy is still proving resilient to the twin drags of high inflation and high interest rates,” said Dales.
The ONS said that output in the services sector dipped 0.1 per cent in February, largely because of strikes in education and public administration. Output in education fell 1.7 per cent, while public administration registered a 1.1 per cent drop.
Unseasonably mild weather compared with January led to falls in the use of electricity and gas, while the construction sector grew 2.4 per cent.
Output in consumer-facing services, such as restaurants, shops and hairdressers, also posted a 0.4 per cent expansion.
Yael Selfin, chief economist at the consultancy KPMG UK, said that, while the UK economy was “likely to escape recession” this year, the medium-term outlook remained “relatively weak by historical standards”.
Martin Beck, chief economic adviser to the consultancy EY Item Club, predicted that the economic recovery would “gain traction” in the second half of 2023, boosted by “falling household energy bills and the impact of the fiscal loosening announced in the Budget”.
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