why does it matter
The small expansion consolidated the better prospects for the British economy. At the end of last year there were fears of a recession, but since then wholesale gas prices have dropped substantially and the economy has fared better than expected. Rather than a winter slump, Britain has recorded two consecutive quarters of growth.
It offers some good news amid a deep cost-of-living crisis, as household budgets have been stretched by a year of inflation at or near double digits. In March, the annual inflation rate was 10.1%.
Along with falling energy prices, businesses and households have shown some resilience to difficult economic circumstances. In particular, employers kept workers on after previous hiring proved difficult and tried to find other ways to cut costs as their expenses rose.
But these data can bring only limited comfort. At just 0.1% growth, Britain’s economy is still sluggish and slightly smaller than it was at the end of 2019, before the coronavirus pandemic.
The data show that Britain is in “a period of virtually no growth”, David Bharier, head of research at the British Chambers of Commerce, said in a statement. “Key issues affecting British business, such as unprecedented inflation, energy price shocks and record tightness in the labor market, have not gone away.”
Bottom
Weak growth is not unique to Britain. The rest of Europe is also still reeling from the war in Ukraine, the energy price shock and rising food prices. The eurozone economy also grew by just 0.1% in the first quarter of this year.
While gross domestic product data provide a useful overview of the performance of the economy as a whole, they mask the different experiences of households and firms. A long period of mediocre growth and high inflation was not felt equally across Britain.
The poorest 20% of households have seen a 20% drop in their living standards compared to pre-pandemic levels, meaning they are getting worse by around £4,000 ($5,000) a year, according to the National Institute of Economic and Social Research. In comparison, the richest fifth experienced only a 5% decline in their living standards.
What is the next
While Britain’s economic outlook has improved, it is not bright.
On Thursday, the Bank of England said it expects the economy to essentially stagnate in the first half of this year, before growing more substantially from The summer. In the current quarter, the strike and the additional holiday for the coronation of King Charles III will weigh on GDP data. For 2023, the country will have an average growth of 0.25%, predicted the bank, as the impact of 12 consecutive increases in interest rates is felt in the economy. Growth will only increase to 0.75% in 2024 and 2025, the bank predicts.
As the year goes on, UK households should benefit from lower wholesale energy prices, which will start to drive down the cost of energy bills. But not much relief is expected from high food prices. In March, food inflation was nearly 20%, the highest in over 45 years. This week, the central bank said there was no expectation that food prices would fall in the short term, only that the rate of inflation would slow, and even then it would be at a more gradual pace than previously expected.
