The UK economy recovered more-than-expected in January, supported by growth in the services sector, according to official statistics released ahead of the budget next week.
Gross domestic product rose 0.3 percent between December and January after contracting the previous month. Office for National Statistics said Friday. That was higher than the 0.1 percent growth forecast forecast by economists polled by Reuters.
The service sector grew by 0.5 percent, driven by education, transport and storage, and health activities.
“The main growth drivers in January were the return of children to classes after an unusually large number of absences in the lead-up to Christmas, Premier League clubs returned to full schedules after the end of the World Cup, and private healthcare facilities also had a strong month,” said Darren Morgan, division director economic statistics ONS.
He added that the partial restoration of postal services after the December strikes also contributed to the growth in output.
Higher-than-expected growth will bolster expectations of a 25 basis point rate hike at the next Bank of England Monetary Policy Committee meeting on March 23.
However, output was still 0.2 percent below February 2020 levels and unchanged from January 2022, reflecting the negative impact of high inflation and rising interest rates on household finances.
UK manufacturing output fell 0.4% in January, down 5.2% from January last year. It showed “some hidden weakness as a result of high inflation and high interest rates,” said Ruth Gregory, an economist at Capital Economics.
The UK is the only G7 economy that has yet to recover to pre-pandemic levels. In the last three months of 2022, the US economy was 5.1% larger than it was in the fourth quarter of 2019, before the first Covid-19 restrictions were put in place; The Eurozone rose 2.4 percent over the same period.
The numbers are ahead of Chancellor Jeremy Hunt’s first budget of March 15. Commenting on the data, Hunt said: “In the face of major global challenges, the UK economy has proven to be more resilient than many expected, but there is still a long way to go
“Next week, I will lay out the next phase of our plan to halve inflation, reduce debt and grow the economy,” he added.
Suren Tiru, director of economics at the Institute of Chartered Accountants in England and Wales, said the budget “could have a significant impact on the UK’s short-term growth outlook”. He warned that “while expanding energy support will bring some relief to needy households, aggressive tax increases could rob the economy of any lingering momentum.”
Many economists have revised their UK growth forecasts upwards for this year due to the recent fall in wholesale energy prices and the resilience of the economy.
But Yael Selfin, a KPMG economist, said the “welcome boost” provided by falling energy prices “may not be enough to prevent a recession in the first half of this year as consumer spending remains low and households continue to suffer. higher prices and higher interest rates.