End of UK recession now almost a certainty

The UK economy is gradually coming out of recession with GDP rising by just 0.1pc in February, official figures showed this week. The meagre growth, not helped by torrential rain that hit the construction sector, marks a slowdown from a 0.3 per cent advance in January, which was revised up last week from 0.2 per cent by the Office for National Statistics (ONS).

However, it still makes it almost certain that GDP went up over the first quarter of the year as a whole, although that will not be officially confirmed until the March figure is out in May.

It would mean the two-quarter “technical” recession seen in the second half of last year probably ended in December, making it one of the shortest such downturns in British economic history. A recession is defined as two consecutive quarters of contraction, and the UK achieved this in the third and fourth quarters of last year when GDP fell by 0.1 per cent and 0.3 per cent respectively.

Although the likely end of the recession cheered the markets – with the FTSE 100 heading towards the 8,000 mark – commentators in the financial district of London (known as the ‘City’) said the UK remained stuck with slow growth.

Associate Director of Fidelity International, Ed Monk, said: “Last year’s recession appears to have been both shallow and short-lived, but the fact remains that UK growth remains weak. We may be shaking off the technical recession but that won’t change the feeling that there is very little momentum in the economy.” Last week’s figures were in line with City forecasts. They show the dominant services sector, which accounts for around 80 per cent of output, grew by 0.1 per cent, while the production sector, which includes manufacturing, advanced 1.1 per cent.

However, the construction sector took a 1.9 per cent fall, the biggest drop in a month since January last year. The ONS said anecdotal evidence suggested “negative effects of heavy rainfall delaying planned work.” It was the fourth wettest February in England, with the southern half of the country seeing more than twice average rainfall.

But ONS chief executive Grant Fitzner said he was “moderately optimistic” about the outlook for the next few months, with the labour market stable, consumer confidence rising, and businesses more hopeful about prospects for turnover. However, much will depend on the timing of interest rate cuts from the Bank of England.

City markets were predicting only a 9 per cent chance of a cut at the May meeting of the Monetary Policy Committee. Chief economist at Santander CIB, Victoria Clarke, said: “The February GDP looks like a perfect ‘not too hot, not too cold’ number for the Bank of England.” Business output has risen sharply to the highest level in nearly two years marking a ‘turning point’ for the UK economy. Research showed that business activity rose for the second successive month in March. Accountancy firm BDO said its output index climbed to 103.39 – the highest since the month of May 2022. Above 95 indicates growth.

The rise was driven by falling inflation – recorded at 3.4 per cent in February – but experts said ‘we are not out of the woods yet’ as measures of business optimism and employment rates both fell. BDO’s business optimism index declined by 0.16 points to 99.33 – the first drop since November.

The employment index fell for the ninth consecutive month to 98.32 last month – its weakest point in nearly eleven years. BDO partner Kaley Crossthwaite said: “Output reaching its highest point in nearly two years illustrates UK robustness. For businesses, the main mood right now is cautious optimism.”