Hunt: The economy is turning a corner
Chancellor of the Exchequer Jeremy Hunt has welcomed the news that the UK economy grew by 0.1% in February, saying:
“These figures are a welcome sign that the economy is turning a corner, and we can build on this progress if we stick to our plan.
“Last week our cuts to National Insurance for 29 million working people came into effect across Britain, as part of our plan to reward work and grow the economy.”
Key events
UK stocks up on GDP joy and mining rally, reports AJ Bell
Share prices in London are rallying (see previous post) on relief that the UK economy continued to grow in February, reports Russ Mould, investment director at AJ Bell.
With the FTSE 100 index rising through the 8,000 point mark this morning, he says:
“The second monthly GDP increase in a row for the UK has triggered a ticker tape parade from investors as they become more hopeful the country will come out of recession.
“Both the FTSE 100 and the more domestic-focused FTSE 250 index jumped 0.8% at the market open, indicating investors are happy that the economy is moving forward, albeit at a snail’s pace. Some growth is better than no growth at all.
“Housebuilders and supermarkets were in demand as investors took the view that a stronger economy will give a boost to consumer confidence and provide a better backdrop for spending.
“Miners also helped to give the FTSE 100 a lift as copper prices continued to climb thanks to the twin engines of supply fears and brighter demand prospects.
FTSE 100 back at 8,000 points
Britain’s FTSE 100 share index has climbed back to 8,000 points, less than 50 points from its alltime high.
The blue-chip index has now gained 78 points, or almost 1%, today, to trade at 8,004 points. That puts it nearer its alltime peack of 8,047 points.
Markets are recovering after a choppy week, as investors weigh up Wednesday’s high-than-expected US inflation reading which has undermined hopes of early interest rate cuts in America.
Precious metals producer Fresnillo is the top riser, up 5%, after the gold price hit a new record high today.
UK housbuilders Taylor Wimpey (+4.4%) and Persimmon (+3.5%) are close behind.
And BP is still in the top risers (+2.5%), following last night’s reports that the UAE’s state oil company has explored a multibillion pound takeover.
Labour’s shadow chancellor, Rachel Reeves, has responded to today’s GDP data, saying:
“After 14 years of Conservative economic failure, Britain is worse off with low growth and high taxes. The Conservatives cannot fix the economy because they are the reason it is broken.
Hailey Low, associate economist at NIESR, agrees that the UK economy seems to be at a turning point…. but also points out that it has effectively flatlined since 2022:
Monthly GDP grew by 0.1% in February 2024, with contributions from all major sectors except construction following a revised 0.3% growth in January. In the three months to February, GDP growth was 0.2%, higher than what we forecasted last month.
On the back of exiting a shallow recession in 2023, this seems to be a turning point, but in a broader perspective, the UK economy has flatlined since 2022.
Increasing productivity will be a constant challenge that requires structural changes and long-term spending commitments to public investment and infrastructure.”
Shares open higher in London
Shares have opened higher in London, as City traders digest the news that Britain is escaping recession.
The FTSE 100 index of blue-chip shares has gained almost 0.9% or 68 points, to trade at 7992 points.
Nearly every share on the Footsie is up, helping to move it closer to its alltime high of 8,047 points, hit in February 2023.
BP is among the top risers, up 2.6%, after Reuters reported last night that the United Arab Emirates’ state-owned oil company had considered launching a takeover bid for the UK oil giant!
Those deliberations “did not progress beyond preliminary discussions”, though.
Although the economy expanded a little in February, it was actually smaller than a year ago!
The ONS estimates that GDP fell 0.2% in February compared with the same month last year.
Over the longer term, GDP is estimated to have fallen by 0.1% in the three months to February 2024 compared with the three months to February 2023.
These chart shows the broader picture – UK growth has been lacklustre for months.
IoD: Disappointing economic growth in February suggests the economy is still fragile
The Institute of Directors don’t share Jeremy Hunt’s cheery take on today’s GDP report.
Dr. Roger Barker, Director of Policy at the Institute of Directors, points out that the economy barely grew in February, by expanding just 0.1%.
This suggests that the economy is still in a fragile state, Barker warns, adding:
After a strong start to the year, the consumer-facing parts of the economy – particularly accommodation and food services – took a backward step. Construction was also surprisingly weak, although there were encouraging signs of revival in production and manufacturing output.
“It appears that the UK’s ascent out of the mild technical recession of last year is a relatively shallow one. Although the latest figures suggest that the UK is likely to generate positive economic growth in the first quarter, there are few signs of a strong economic rebound.
The assertion that the UK economy has decisively turned the corner, as recently asserted by the Prime Minister, is still yet to find confirmation in the data.
Economists hopeful UK is pulling out of recession
City experts sound confident that the UK economy will pull itself out of recession.
Today’s news that the economy grew by 0.1% in February and 0.3% in January bolsters hopes that GDP did not shrink in the January-March quarter.
If that happens, it would end the techncial recession that gripped the country in the second half of 2023, when GDP shrank in Q3 and Q4 2023.
Having said that, though, growth 0f 0.1% in February isn’t exactly rollicking.
Richard Carter, head of fixed interest research at Quilter Cheviot, says:
“The UK has continued its positive start to the year as GDP grew again in February, albeit only marginally, and looks on course to be pulled out of the short and shallow recession it entered at the end of last year.
“UK GDP is estimated to have risen 0.1% in February, a slight dip compared to January’s 0.3% growth which was revised up from 0.2%, but still positive nonetheless. This uptick was driven primarily by improvements in the UK’s services and production sectors.
Neil Birrell, chief investment officer at Premier Miton Investors, says:
“The UK economy grew, albeit very modestly, in February, suggesting that any sort of meaningful recession will be avoided.
With inflation tracking back, the Bank of England might be persuaded to start cutting rates sooner rather than later and after the CPI data out of the US and the ECB meeting over the last week, we could well see the Fed being the last of the three to take any action on rates. That would quite a shift over a period of a few months.”
“The sun is finally out but the UK economy outlook remains foggy” says Yael Selfin, chief economist at KPMG UK.
“Despite weaker momentum in February, the economy’s ongoing recovery is the latest piece of evidence that the shallow technical recession is already behind us. Growth was helped by the January cut in National Insurance, a further boost to purchasing power from falling inflation, and an easing in cost pressures for businesses. Combined with more timely survey data, we expect GDP to grow at around 0.3% over Q1.
“Nonetheless, there are limits to the UK’s growth potential this year. Consumer spending remains fragile. Business investment could be dented by uncertainty related to the general election and growing speculation around a second fiscal event in the Autumn, while weakness in the housing market could further drag on construction by lowering the return on new housebuilding.
Hunt: The economy is turning a corner
Chancellor of the Exchequer Jeremy Hunt has welcomed the news that the UK economy grew by 0.1% in February, saying:
“These figures are a welcome sign that the economy is turning a corner, and we can build on this progress if we stick to our plan.
“Last week our cuts to National Insurance for 29 million working people came into effect across Britain, as part of our plan to reward work and grow the economy.”
Full story: UK takes another step on path to exit recession
Richard Partington
Britain’s economy has taken a step closer to exiting recession after official figures showed growth continued in February despite a washout month for retailers after one of the wettest starts to a year on record.
Here’s the full story:
The UK economy is putting further distance from last year’s recession, says Jeremy Batstone-Carr, European strategist at Raymond James Investment Services
“Data released this morning by the ONS shows that UK GDP expanded by 0.1% in February. This signals a further move away from the shallow economic contraction experienced over the second half of 2023.
“More evidence supports this revival. Service sector output delivered a second consecutive month of expansion, which, paired with upbeat retail sales and forward-looking business surveys, point to strengthened activity in March. Industrial output remains below pre-pandemic levels, and gas and electricity output were subdued by mild weather. But a broad revival is nonetheless underway, as part of an improving global outlook.
“Today’s data indicates that the UK’s economic trajectory is on a shallow but steady upward course. The measures introduced in the March Budget will further enhance prospects in the short term. However, decelerating inflation paves the way for the Bank of England to commence its rate cutting process in the coming months, a decision which should also prove supportive to the growth outlook.”
UK GDP: the details
Britain’s industrial sector was the largest contributor to growth in February.
Today’s GDP report shows that production output grew by 1.1% in February, more than reversing a 0.3% drop in January.
Manufacturing output rose by 1.2%, driven by a surge in manufacturing of transport equipment such as cars.
The services sector had a calmer month – it grew by 0.1% in February, slower than the 0.3% growth in January.
And it was a month to forget for builders, with construction output falling by 1.9% in February.
The ONS cites “anecdotal evidence” that heavy rainfall delayed planned work and decreasing output in February.
ONS: The economy grew slightly in February
Here’s ONS director of economic statistics Liz McKeown on the news that the UK economy grew by 0.1% in February:
“The economy grew slightly in February with widespread growth across manufacturing, particularly in the car sector. Services also grew a little with public transport and haulage, and telecommunications having strong months.
“Partially offsetting this there were notable falls across construction as the wet weather hampered many building projects.
“Looking across the last three months as a whole, the economy grew for the first time since last summer.”
UK economy grew by 0.1% in February
Newsflash: the UK continued to grow in February, boosting hopes that the economy is escaping recession.
GDP expanded by 0.1% in February, new data from the Office for National Statistics shows, lifted by growth in the production and services sectors.
And the ONS has lifted its forecast for January, to show 0.3% growth, up from 0.2% previously estimated.
This suggests the economy may manage to grow in the first quarter of 2024. And that would mean the short, shallow recession that began at the end of 2023 will officially end.
Half of consumers ‘cut back on non-essential spending’
Even if the economy is growing again, households are still struggling.
Half of consumers have cut back on their non-essential spending so far this year, with eating out the most likely thing to be cut from budgets, a survey this morning shows.
Just 3% of consumers say that they have been able to spend more on non-essentials in the first quarter, with 52% cutting back, according to the KPMG Consumer Pulse survey.
Eating out was the most common discretionary spending cut, listed by 72% of those who are scaling back, followed by clothing purchases (62%) and takeaways (58%).
Sanjay Raja, Deutsche Bank’s chief UK economist, predicts wet weather and lower energy production will mean UK growth slower in February, to 0.1%.
But he also believes the economy is at a ‘turning point’ after last year’s shallow recession.
Raja explains:
After matching our estimates in January, we expect GDP growth to slow to 0.1% m-o-m in February 2024 (Jan-24: 0.2% m-o-m). What’s driving the slowdown? Wetter weather and lower oil/energy production will, we think, keep GDP from budging very much. Overall, we see services activity and industrial production up 0.1% m-o-m, respectively, with construction output flat on the month.
Looking ahead, we think the UK economy is at a turning point following on from its short and shallow recession last year. We see GDP picking up by 0.2% q-o-q in Q1-24, and pushing to 0.3% – 0.4% q-o-q for the remainder of the year. For 2024 as a whole, we see GDP up 0.5%, rising by 1.5% next year.
Introduction: UK GDP report in focus
Good morning.
We’re about to learn whether the UK is climbing out of the recession into which it slipped at the end of last year.
At 7am, the Office for National Statistics will release its first estimate for UK GDP in February, and the City are hoping to see signs of growth.
Economists predict that GDP rose by 0.1% in February; a weak expansion, following 0.2% growth in January. That would raise the chances that the economy grew in the first quarter of 2024 – which would end the recession.
Reminder: The UK ended 2023 in a technical recession, after shrinking slightly in both the third and fourth quarters of last year.
To escape recession, it needs to not shrink in January-March (and that data is due in a month’s time).
Bad weather may have weighed on UK growth this year, though. We already know that retail sales growth slowed during a wet February, when storms kept people at home.
Any signs that the downturn is over would be welcomed by the government, with a general election close.
But the financial markets are not being very kind to Rishi Sunak this week. The PM’s hopes that the public might see lower taxes and cheaper mortgages soon have weakened, as traders scaled back expectations of interest rate cuts in 2024 yesterday.
The City now expects just two quarter-point cuts to UK interest rates in 2024, which would lower rates by half a percentage point to 4.75% by December.
Today’s GDP report may not change the outlook for rate cuts, explains Danni Hewson, head of financial analysis at AJ Bell:
UK GDP figures are expected to be tepid, not too hot or too cold, and unlikely to do much to change thinking at the Bank of England.
“Where just a few months ago markets were betting rates here in the UK could fall below 4% by Christmas now only two cuts are being priced in. The sands are shifting and investors are having to be fleet of foot.”
The agenda
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7am BST: UK GDP report for February
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Noon BST: Bank of England to publish review of its forecasting models
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1pm BST: India’s inflation rate for March
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3pm BST: University of Michigan’s index of US consumer confidence
