The UK Economy bounced back in January after December’s omicron shock, but economists warned new headwinds made for tempered growth outlooks this year.
GDP rose 0.8% in January, its fastest rate since June after shrinking by 0.2% in December on the back of Omicron restrictions, now left firmly behind by booster vaccinations and the easing of final restrictions on activity.
Services were the key driver of the recovery, contributing 0.6% of total growth as the consumer-facing retail and hospitality sectors staged a comeback, with wholesale trade rising 3.8%.
The UK economy is now 0.8% above pre-covid levels.
“Bars and restaurants took in some of the cash that didn’t make it into December’s tills, and wholesalers rushed to supply them. Shops were busier than normal, and those Christmas blockbusters did finally find an audience,” said AJ Bell financial analyst Danni Hewson.
“The scale of January’s bounce back exceeded expectations but it’s important to note that whilst the service sector as a whole is back above pre-pandemic levels, consumer facing services still have much ground to make up.”
Construction meanwhile staged its third successive month of growth greater than 1% in a sign supply chain pressures were eventually easing prior to the latest commodities crisis.
“GDP data for January confirmed expectations that the economic impact of the spread of the Omicron COVID-19 variant would prove fleeting,” said Martin Beck, chief economic advisor to the EY ITEM Club.
But he acknowledged growth was largely in the rear-view mirror, with expected inflation of 9% in April in the face of rising commodity prices likely to drag down growth.
“As things stand, following April's forthcoming 54% increase in Ofgem's price cap, October will deliver another significant rise in energy bills, slowing any fall-back in inflation.
“The rising cost of living will weigh on households' spending power, while a more uncertain environment is not positive for business investment.”
Beck was however optimistic about activity, with unemployment low and the balance sheets of households and companies relatively strong.
The data is the last Chancellor Rishi Sunak will receive before he delivers his Spring Statement on 23 March, where an initially benign-looking update is now overshadowed by massive increases to the cost of living on the back of surging oil and gas prices from Russia’s invasion of Ukraine.
Sunak has been urged by research groups to up spending and borrow up to £12bn to avoid a 1970s-style financial crisis, while military spending is also likely to increase.