UK economy grows in first quarter but shrinks in March

The UK economy grew by 0.1% between January and March, with retail under pressure as the cost of living squeeze continues to hit consumers, according to data from the Office for National Statistics (ONS).

However, the economy shrank 0.3% in March as retail and car sales fell sharply, and public sector strikes were more disruptive than February as NHS staff and teachers took to picket lines. That follows stagnation in February.

March was also “exceptionally wet”, according to the ONS – the sixth wettest March since 1836 – which hit retail sales, as wet weather kept people off the high street.

ONS director of economic statistics Darren Morgan said: “Despite the UK economy contracting in March, GDP grew a little over the first quarter as a whole.

“The fall in March was driven by widespread decreases across the services sector.

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“Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.”

The ONS also said that there was no growth in real household expenditure, as incomes remained under the squeeze of higher prices.

Ruth Gregory, deputy chief UK economist at Capital Economics, said that the quarterly figure “suggests that low real income and high interest rates, as well as the unusually wet weather, are dampening activity”.

Output in consumer facing services, such as retail, dropped by 0.8% in March compared to the same month last year.

The construction sector expanded by 0.7%, while manufacturing performance went up by 0.5% in the first quarter, with 0.1% growth logged in services and production.

Chancellor Jeremy Hunt said: “It’s good news that the economy is growing but to reach the government’s growth priority we need to stay focused on competitive taxes, labour supply and productivity.

“The Bank of England governor confirmed yesterday that the budget has made an important start but we will keep going until the job is done and we have the high wage, high growth economy we need.”

A three-month period, or quarter, of economic growth means the UK is on the path to avoid recession.

Neil Birrell, chief investment officer at Premier Miton Investors, said: “With headlines of pain being felt in the consumer sector, it would be expected that GDP growth would be weaker, or maybe even showing signs of recession, but the economy is holding up remarkably well.

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“The Bank of England will be pleased with the data, but they will need to see inflation moderate significantly to avoid considering more recession-inducing interest rate hikes.”

While the UK has so far managed to avoid a technical recession, March’s figures highlight show that the economic backdrop is sluggish.

Victoria Scholar, head of investment at Interactive Investor, said: “Stubbornly high inflation, negative real wage growth and general cost of living pressures are weighing on the consumer, and in turn the services industry which is typically a key growth engine for the UK economy.

“Today’s figures point to the importance of taming inflation, a daunting task facing the Bank of England and the government, in order to catalyse a revival in services.”

Paula Bejarano Carbo, associate economist at the National Institute of Economic and Social Research (NIESR), said the figures show "(welcome) low growth, rather than a much-needed jump start".

The figure comes a day after the Bank of England said it was more optimistic about prospects for the UK and that the economy would avoid recession.

The Bank also increased interest rates to 4.5% from 4.25%. The rate rise was part of the Bank's continued attempt to slow soaring price rises.

Watch: UK economy shrank 0.3% in March, ONS figures show

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