UK economy ekes out growth in first quarter despite drop in March

The UK economy grew marginally in the first three months of 2023 despite a contraction in March, according to the Office for National Statistics (ONS).

The ONS said in the first quarter, GDP rose 0.1%, in line with economists' forecasts, while in March the economy contracted by 0.3% after showing no growth in February.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said growth was "eked out despite strike activity which derailed some momentum".

"The data comes hot on the heels of changed forecasts from the Bank of England. Lower energy prices are expected to stop the UK economy from contracting compared to previous expectations," she said.

However, while the surprise change in the UK’s economic growth is "certainly welcome", she pointed out "there are still real hurdles to overcome".

"There’s no sugar coating the fact that growth remains very sluggish – the UK is hardly on course to shoot the lights out this year."

ING Economics noted: "March was memorably wet, so some of this underperformance can be attributed to bad weather, and to some extent also strike action.

"But that doesn’t seem to explain all of the disappointment, with a 0.8% fall in consumer-facing services," it pointed out.

ING said this casts doubt over the Bank of England’s tentative finding in yesterday’s Monetary Policy Report that private sector activity had staged a modest recovery throughout the first quarter.

The EY ITEM Club expects the extra Bank Holiday and ongoing strikes to drag on output in the second quarter, to the extent that a small quarter-on-quarter fall in GDP is possible.

"But the recovery should gain greater traction in the second half of 2023 as lower inflation helps to bring about a recovery in household spending power," the economic bureau said.

The services sector fell by 0.5% in March, after an unrevised fall of 0.1% in February, and was the main contributor to the fall in monthly GDP.

Output in consumer facing services fell by 0.8% in March, after unrevised growth of 0.4% in February.

Production output grew by 0.7% in March, which was its strongest monthly growth since May 2021, following a fall of 0.1% in February (revised up from a 0.2% fall).

The construction sector grew by 0.2% in March after growth of 2.6% in February (revised up from a 2.4% growth).

Services and production both grew by 0.1% in the three months to March 2023, while construction grew by 0.7%.