Subsequent PM prone to inherit improved financial system after UK progress revised up

The UK financial system grew at a sooner fee than beforehand thought within the first quarter of 2024, handing the subsequent prime minister an improved financial backdrop.

Gross home product (GDP) rose by 0.7% within the first three months of 2024, revised upwards by the Office for National Statistics from a primary estimate of 0.6%.

The primary-quarter figures have been lifted by progress within the companies sector, up by 0.8%, in addition to the manufacturing sector, which expanded by 0.6%, though that was revised down from 0.8% within the preliminary estimate. Different areas of the financial system fared much less nicely, with unhealthy climate hampering the development sector, the place output fell by 0.6%.

The information confirmed that the UK was the fastest-growing financial system within the G7 throughout the first quarter after a short recession in the second half of last year.

Actual family disposable earnings – how a lot every house is left with after tax, adjusted for inflation – is estimated to have elevated by 0.7% within the first quarter of this yr, matching the expansion within the last quarter of 2023, in response to the ONS.

The power of the financial system has been an enormous situation within the basic election marketing campaign after voters suffered a squeeze from higher inflation and increased mortgage rates over the previous three years.

Rishi Sunak has insisted that the UK financial system has turned a nook however the newest encouraging knowledge comes lower than per week earlier than polling day.

The Decision Basis thinktank mentioned residing requirements – as measured by actual family disposable earnings per head – have been up by 2.4% on account of pay rising sooner than costs.

Regardless of the advance as value of residing pressures have eased, residing requirements over the 2019-24 parliament as a complete fell by 0.6%, leaving the typical individual £120 a year worse off than they have been on the time of the final election.

Adam Corlett, the thinktank’s principal economist, mentioned it was solely the third time because the first world warfare that residing requirements had been decrease on the finish of a parliament than firstly.

The UK financial system confirmed no growth in April, with a rise within the companies sector offset by falls in manufacturing and building after heavy rain hampered constructing work and deterred buyers from spending on the excessive road.

Nonetheless, more moderen figures present client confidence is returning – bolstered by falling inflation and stronger retail gross sales. UK inflation fell to 2% in May returning to the official goal fee for the primary time in almost three years. Figures launched final week confirmed retail gross sales bounced back with 2.9% growth in May after a weather-affected drop of 1.8% the earlier month.

Economists mentioned the enhancing financial system was prone to profit the incoming prime minister, with the Financial institution of England broadly anticipated to chop rates of interest later this yr.

“It now appears to be like as if actual family disposable earnings will develop by greater than our forecast of two.0% this yr and we expect a strong 3.5% acquire subsequent yr too,” mentioned Paul Dales, the chief UK economist on the analysis firm Capital Economics.

“That is actually excellent news for whoever would be the prime minister this time subsequent week, though it may additionally contribute to the Financial institution of England chopping rates of interest a bit slower than in any other case.”

Dales mentioned the family financial savings ratio – the proportion of disposable earnings saved moderately than spent – stood at 11.1% within the first quarter, its highest degree because the second quarter of 2021.

Households have a tendency to save lots of extra once they really feel unsure in regards to the future, and the financial savings ratio rose throughout the price of residing disaster. Dales mentioned that ought to the financial savings ratio come down from its “unusually excessive degree” progress might be stronger than the 1% and 1.5% he was anticipating for 2024 and 2025 respectively.