HomeTop StoriesBritain is emerging from recession as the services sector recovers

Britain is emerging from recession as the services sector recovers

The UK has emerged from a short and shallow recession, official figures showed on Friday, giving Prime Minister Rishi Sunak a much-needed boost ahead of elections expected later this year.

According to preliminary data from the Office for National Statistics (ONS), gross domestic product grew by 0.6% in the first three months of the year.

The increase follows a decline of 0.3% in the fourth quarter and 0.1% in the third quarter of last year. A recession is usually defined as two consecutive quarters of economic contraction.

The expansion early this year was driven by “widespread growth” in the services sector, where output rose 0.7% during the quarter, the ONS said.

The news will provide some relief for Sunak and his ruling Conservative Party, who suffered heavy losses in last week’s local elections, which bodes ill for the party’s chances in the general election. Sunak suffered further embarrassment this week when one of his lawmakers defected to the opposition Labor party.

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The Bank of England now expects British GDP to grow by 0.5% this year, double the pace forecast in February, according to projections published on Thursday. Last year, GDP rose by a paltry 0.1%.

There are other signs that the outlook for the economy is improving. In April, combined output in manufacturing and services grew at the strongest pace in almost a year, according to a survey of purchasing managers compiled by S&P Global. Service companies drove the expansion.

Inflationary pressure?

However, a growing economy could delay the rate cuts widely expected this year.

“Stronger GDP growth raises the risk of stronger demand pressures on inflation,” Nomura analysts wrote in a note, adding that Friday’s GDP release “casts doubts” on a June cut. They expect the Bank of England to start cutting borrowing costs in August.

Annual UK inflation stood at 3.2% last month, a sharp slowdown from levels above 10% about a year ago. The central bank is targeting an interest rate of 2% and expects to achieve this more or less in the coming months, Governor Andrew Bailey said.

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“Inflation has come down a lot… (but) we need to see more evidence that inflation will remain low before we can cut rates,” he said on Thursday, after the central bank announced its decision to keep official borrowing costs at 5.25% hold.

Bailey did not rule out a rate cut in June, but told reporters this was not a given and that rates would be informed by inflation and the labor market in the coming weeks.

This is a developing story and will be updated.

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