UK GDP edges higher in first quarter despite weak March

The UK economy shrunk in March, official data showed on Friday, but managed to nudge higher over the quarter as a whole.

According to the Office for National Statistics, GDP fell 0.3% in March. That was worse than expected, with most analysts looking for no growth.

However, March’s figure followed 0.0% in February but growth of 0.5% in January, revised upwards from a previous print of 0.4%.

As a result, GDP was estimated to have edged higher over the first quarter by 0.1%.

Within that, the services sector grew by 0.1%, construction expanded by 0.7% and production nudged 0.1% higher.

The ONS said the largest downward effects in March came from motor trades and from retail, which was hit by poor weather and surging food prices.

It also found anecdotal evidence suggesting industrial action had impacted a number of industries over the quarter, particularly education, health, public administration and defence, and transport.

On Thursday, the Bank of England said it now to see expected “modest but positive growth” in the next few months, with growth of 0.2% in both the first and second quarters, once the effect of strikes and the extra bank holiday for the coronation are stripped out.

The updated forecast marks a notable difference to previous predictions from the BoE, made at the end of 2022, for the UK to fall into recession this year.

The Monetary Policy Committee raised the cost of borrowing to 4.5% on Thursday, the twelfth successive increase and highest in almost 15 years, as it looked to tackle stubbornly high inflation of 10.1%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The UK remains the only G7 country in which the main quarterly measure of GDP has not recovered to its pre-Covid peak yet; it was still 0.5% below its fourth quarter 2019 level in the first quarter.

“This chiefly reflects weakness in the households’ real spending, which was 2.3% below its fourth quarter 2019 level. But at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have a faced a similarly enormous energy price shock.”

“Looking ahead, we think the MPC’s new forecast for GDP to simply hold steady in the second quarter is in the right ballpark, given that public sector strikes look set to weigh a little more heavily on GDP.”

The ONS also released trade data on Friday, showing that total imports of goods in value terms fell by £1.4bn or 2.8% in March, while exports decreased by £0.7bn or 2.3%. The falls in both imports and exports were attributed to decreases in trade with non-European Union countries; trade with the EU remained stable.

As a result, the trade deficit narrowed to £2.86bn in march, from £3.35bn in February and much smaller than consensus, for £5bn.

The quarterly trade in goods deficit also narrowed, by £8.9bn to £55bn, while the total trade in goods and services deficit narrowed by £10.2bn to £15.1bn.